Q3 2024 CoStar Group Inc Earnings Call
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Speaker Change: Good day and thank you for standing by welcome to the Q3 2020 for Costar Group Earnings Conference call. At this time all participants are in a listen only mode. Please be advised that today's comprehensive being recorded after the speaker's presentation there'll be a question and answer session to ask a question. Please press <unk>.
Speaker Change: SAR one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again I would now like turn the conference over to your speaker today, Rich Simonelli head of Investor Relations.
Rich Simonelli: Hello, and thank you all for joining us to discuss the.
Third quarter 2024 results of the Costar group.
Rich Simonelli: Before I turn the call over to Andy Florance, Costar, CEO and founder Chris Lown, our CFO.
Rich Simonelli: I'd like to review, our Safe Harbor statement certain portions of the discussion today may contain forward looking statements, including the company's outlook and expectations for the fourth quarter and full year 2024 based on current beliefs and assumptions.
Rich Simonelli: Forward looking statements involve many risks uncertainties assumptions estimates and other factors that could cause actual results to differ materially from such statements important factors that could cause actual results to differ include but are not limited to those stated in Costar group's press release issued earlier today and in our filings with the SEC.
Rich Simonelli: <unk> our most recent annual report on Form 10-K, and subsequent quarterly reports on Form 10-Q.
Rich Simonelli: Under the heading risk factors.
Rich Simonelli: All forward looking statements are based on the information available to Costar on the date of this call and Costar assumes no obligation to update these statements whether as a result of new information future events or otherwise reconciliation to the most directly comparable GAAP measure of any non-GAAP financial measure discussed on this call.
Rich Simonelli: As shown in detail in our press release issued today, along with definitions for these terms.
Rich Simonelli: Press release is available on our website located at Costar group that come under pressure.
Speaker Change: As a reminder, instance, many already all logged in already today's conference call is being webcast live and in color and the link is also available on our website under investors. Please refer to today's release on how to access the replay of this call and with that I would like to turn the call over to our founder and CEO Andy Florance.
Andy Florance: Thank you for joining Costar group's third quarter earnings call welcome back Rich net issue.
Speaker Change: Mr. Hu earnings calls, yes that was enjoying myself on the eastern shore Oh, you were working remote yes, and now you are back working a real job well you should be when youre in the office business you should be in the office that's right welcome back. Thank you.
Speaker Change: We achieved another strong quarter of financial results third quarter, 2024 revenue was $693 million, an 11% increase year over year and in line with our guidance.
Speaker Change: This is the 54th consecutive quarter of double digit growth for Costar group.
Speaker Change: Our core businesses are strong industry leaders I am extremely pleased that each of our 1 billion dollar businesses Costar and apartments continued to grow revenue, 10% and 16% respectively.
Speaker Change: We are on track for 17% revenue growth in multifamily in 2020 for a business. That's now approaching $1 1 billion in run rate revenue.
Speaker Change: We grew net income in the quarter to $53 million up from $7 million in Q1, 'twenty four we grew EBITDA in the quarter to $51 million up from.
Speaker Change: From negative $13 million in Q1, 24, our adjusted EBITDA of $76 million in the quarter was well ahead of our guidance range of $47 million to $52 million.
Speaker Change: The early part of 'twenty 'twenty four was our most intensive investment period into homes Dot com.
Speaker Change: The profit margin of our commercial information and marketplace businesses remained strong increasing to 43% in the quarter.
Speaker Change: Average monthly unique visitors to our global websites reached $163 million in the third quarter of 2024, According to Google analytics, which is up 28% year over year.
Company net new bookings were $44 million in the third quarter of 2004.
Speaker Change: We launched homes Dot com earlier this year and when he did we only had 41 dedicated salespeople to selling homes dot com at the scale of the product we needed a much larger sales force to take advantage of the opportunity. So we asked all the sales teams across Costar group to help sell the new homes Dot com product.
Speaker Change: They did successfully sell a significant volume of homes dot com, but it came at the price of selling less of their core product.
Speaker Change: The reality of pivoting the entire sales force to new product.
Is that they are all rookies and solid new product. This means lower productivity lower service skills, and suboptimal command of value propositions that causes lower overall productivity and renewal rates and the early sales process.
Speaker Change: But.
Speaker Change: It's worth it for launching a major new product with long term potential.
Speaker Change: We have been ramping that dedicated sales teams quickly and now all but 200 that dedicate homes sales teams quickly and now all but 200 of the overall Costar group Costar apartments, and Loopnet salespeople are back to sign their respective products as their only in core focus.
Speaker Change: It takes about one to two quarters to completely refilled these pipelines.
Speaker Change: Improvement in net new bookings in Q4 and throughout 2025, we are already seeing an upturn.
Speaker Change: September was the strongest month in net new sales and our costar product in the past year.
Speaker Change: While we are growing that dedicated homes dotcom sales force, we are concurrently invest and to grow the sales teams of Costar, Loopnet and apartments dot com as well by more than 100 sales reps. Each we believe theres more than enough market opportunity to productively engage the additional sales head count.
Speaker Change: In the four years since the Covid Lockdown in March 2020, we have experienced the worst commercial real estate market in a generation even considered in these significant headwinds costar continues to be the preeminent source of information and analytics for the industry and grow revenue.
Speaker Change: Our CRE business has performed remarkably well during this time, having steadily grown subscribers in prices, while maintaining incredible 93% renewal rate in the third quarter of 2024.
We also launched new products for our institutional clients, namely owners and lenders as institutional sales are a major part of our net new sales.
Speaker Change: Our salesforce net promoter scores are now the highest they've ever been for Costar.
Speaker Change: We have seen much success with our lender product, which our customers use to meet banking regulatory requirements, we've experienced 36% growth since Q3, 2023 and $50 million in annualized lender product revenue with only a 12, 5% penetration into what we believe is a tam.
Speaker Change: A $400 million for that product area.
Speaker Change: On our last call, we announced that we had just released our owner module, which presents the largest owners of commercial real estate and an aggregate view.
Speaker Change: The product enables a user to see the company its subsidiaries funds in real estate assets leasing and sales transaction history brokerage relationships tenants tenant mixes and availabilities.
Speaker Change: Uses of Costar now have a comprehensive view of global owners with portfolios greater than 25 properties.
Speaker Change: Costar will become even more valuable as the resetting of commercial property values begins to kick in in 'twenty, five and 26 930 billion of loans are due in 'twenty four with approximately 30% of this total extended from last year.
Speaker Change: M. B S delinquency rates remained elevated and office delinquencies have increased notably to seven 7%.
Speaker Change: Simultaneously I believe that there are green shoots in the office market fundamentals that may motivate buyers looking for opportunistic value as a result, I believe you will see more transactions on <unk> in the year ahead.
Speaker Change: We continue to see increased costar product activity engagement from our 237000 subscribers.
Speaker Change: Nearly a quarter of million dollars, but not quite.
Speaker Change: Property searches neared $73 million in the third quarter of 2024.
Speaker Change: A 17% increase year over year.
Speaker Change: Overall costar activity counts increased 29% over the same time last year.
Speaker Change: Our distinct logins have increased every month and we set a new high Mark in September with more than 164000 distinct log ins we.
We serve subscribers with for Costar and 112 countries now.
Speaker Change: S. T. R is an excellent addition to our costar product, adding powerful hospitality data and analytics for Costar subscribers. The hotel asset class is three trillion dollars in value.
In August we released analytics for more than 400, new global hospitality markets and additional 1200, new hospitality Submarkets.
Speaker Change: With this release, we have delivered the remaining global markets that were covered by STR before the integration.
Speaker Change: We have over 85000 properties in STR, representing 11 million rooms, contributing data to our platform.
We track over 300000 hospitality properties from 180 countries.
Speaker Change: We believe Costar is the only source of this comprehensive analytic data, giving our users detailed supply and demand and hotel performance insight around the globe.
Speaker Change: Apartments Dot com turned in another strong quarter revenue was 272 million for the third quarter of 24, we continue to add new customers with properties of all unit counts to our marketplace at a rapid place pace with over 75000 paying communities on our network, including over.
Speaker Change: 10000 in the five to 50 unit range.
Speaker Change: In the below 20 unit market, we delivered a record inventory of house condo and townhouse listings in Q3.
Speaker Change: We are seeing strong growth in the rental tools business that supports independent owners with all aspects of managing their rental portfolio.
Speaker Change: Q3 posted a record number of paid user entered listings and we processed 1.3 billion in rent payments.
Single family rental listings have boosted lead count by more than Forex for homes Dotcom member agents.
Speaker Change: We had nearly a quarter billion of total visits in Q3 with 43 million average monthly unique visitors to our apartments dot com.
Speaker Change: Site with exceptionally strong unaided awareness from apartment seekers at 67% in.
Speaker Change: In Canada apartments Dot com generated the most unique visitors of any site according to Comscore.
Our marketing campaigns continued to deliver with top programming venues like E. S. P Awards NBC Olympics zone, the NFL season opener and Jimmy Kimmel live with Jeff Goldblum as the host Jeff Goldbloom, even included apartments Dot com in his opening song.
Jeff Goldblum: If this doesn't work out he said I still have apartments dot com.
Jeff Goldblum: And as always welcome home.
Jeff Goldblum: Two as apartment.
Jeff Goldblum: Apartments dotcom competitive position remains strong in the multifamily segment.
Speaker Change: They bought apartments dot com in 2014, we had approximately $85 million in revenue and we were way back of the pack in a very crowded field, which included Zillow, who had entered the market years before us.
Speaker Change: We have now moved into the clear leadership position in our revenue growth has grown about 1200% from that point.
Today, our multifamily revenues 2.5 times bigger than Zillow and importantly, our revenue is subscription based with outstanding customer satisfaction and very high renewal rates.
Speaker Change: When we purchased four rent dot com I had the chance to spend some time to discussing industry dynamics with their leaders who had a few more decades of experience than I in the multifamily space.
Speaker Change: I asked them what happened to a business like apartments dot com when a bad market came about if theres a downturn.
Speaker Change: They were surprised they stopped me and said the question was off because.
Speaker Change: We were currently in a low vacancy rate market, which was in fact, what they consider to be a bad market.
Speaker Change: They explained that the number one player like apartments Dot com does really well in both the high vacancy or low vacancy market because apartment communities will always continuously advertise on the number one platform.
Speaker Change: But that second tier players suffered during low vacancy markets because the apartment communities Nate less leads and cutbacks spend on second tier cites or backup sites.
Speaker Change: They explained that when vacancies rise in the market becomes soft that's when the second tier cites could grow their business as community supplement their advertising on the primary site like apartments Dot com was spend on second tier cites so.
Speaker Change: So I remember when a site start showing higher growth rates and high vacancy market. It's a confirmation that the site is an also ran second tier player.
Speaker Change: We are now exceeding 175000 quality client interactions per quarter. This along with a great product results in a satisfied customer base, which gives us a 94 N P. S rating with a 92.6% renewal rate in Q3 really a remarkable NPS.
Speaker Change: Rating congratulations to the apartments dot com team.
Andrew Florance: In the third quarter of 24, Lutman had its best net new sales quarter since Q3, 23, as a Lutman sales force returns its focus to selling Lutman. Despite the market's difficult conditions in the third quarter, 24 total paid listings are up 4%. September also saw the highest number of meetings with clients and prospects in two years. Our traffic numbers continue to be impressive over the past 12 months; Lutman had a massive 72 times the unique visitors of the average competitor, according to SCM Rush. Internationally, the Canadian Lutman network, which is relatively new, also dominates the nearest competitor with nearly four times the traffic, according to SCM Rush.
In the third quarter of 'twenty for Loopnet had its best net new sales quarter since Q3, 'twenty three as a loopnet sales force returned its focus to selling loopnet. Despite the mark it's difficult conditions in the third quarter 24 total paid listings are up 4%.
Speaker Change: September also saw the highest number of meetings with clients and prospects in two years.
Speaker Change: Our traffic numbers continue to be impressive over the past 12 months Loopnet had a massive 72 times the unique visitors of the average competitor according to SCM rush.
Speaker Change: Internationally, the Canadian Loopnet network, which is relatively new also dominates the nearest competitor with nearly four times the traffic according to SCM rush.
Andrew Florance: I'm also pleased with our progress in the UK, as a Lutman network delivered twice the traffic of our nearest commercial and competitor, again according to SCM Rush.
Speaker Change: I'm also pleased with our progress in the U K as the Loopnet network delivered twice the traffic of our nearest commercial like competitor again, according to STM rush.
Andrew Florance: We are still in the bottom of the first inning when it comes to launching the new Homes.com. We effectively launched the homes.com site in mid-February of this year, so we are now seven months into building this mega new product area for the company. Thousands of our talented staff have put tremendous effort into creating the best residential real estate portal to win over hundreds of millions of home buyers and sellers, so that ultimately we can monetize with a million agents. With success in the US, our mission will be to expand globally. Many will try and read the team leaves and discern within hours, days, and months what the outcome of the year's ahead will be.
Speaker Change: We are still in the bottom of the first inning when it comes to launching the new homes Dotcom, we effectively launched the homes Dotcom site in mid February of this year. So we are now seven months into building this mega new product area for the company.
Speaker Change: Our talented staff have put tremendous effort into creating the best residential real estate portal to win over hundreds of millions of homebuyers and sellers. So that ultimately we can monetize with a million agents with success in the U S. Our mission will be to expand globally.
Speaker Change: Many will try and read the tea leaves and discern within hours days and months with the outcome of the years ahead will be.
Andrew Florance: I've been fortunate to have the opportunity to work on several large-scale projects like this, and I know the outcomes only become clear to everybody in the public over the course of several years. I feel really great about what we are accomplishing already, and I'm highly confident that we can win major share, revenue, and EBITDA in this segment. We continue to hear directly from agents and focus groups, brokerage and industry leaders that definitely prefer our business model of your listing, your lead. Agents and brokerage firms are becoming more frustrated. They're forced to put their listings into the MLS, and they have their listing sold off into the lead diversion model, such as Zillow and Realtor, which means the seller's agent loses control over the listing and will lose his potential business from those diverted leads, those non-permission diverted leads.
Speaker Change: Been fortunate to have the opportunity to work on several large scale projects like this and I know the outcomes only become clear to everybody in the public over the course of several years.
Speaker Change: I feel really great about where we are a comp what we're accomplishing already and I'm highly confident that we can win major share revenue and EBITDA in this segment.
Speaker Change: We continue to hear directly from agents and focus groups brokerage industry leaders that they definitely prefer our business model of your listing your lead.
Speaker Change: Agents and brokerage firms are becoming more frustrated that they're forced to put their listings into the MLS and that their listing sold off into lead diversion models, such as Zillow and realtor, which means the seller's agent lose control over the listing and lose as potential business from those diverted leads.
Speaker Change: Those.
Speaker Change: Non permission diverted leads.
Andrew C. Florance: Buyers want to see who the listing agent is so that they can reach out for a quick question without getting the hard sell from half a dozen buyer brokers. Sellers want the agent they hired and work hard to find to work the leads for their home's effective sale. I believe that our business model is clearly superior to our competitors and that it will be the future model. In the US, our marketing campaign for homes.com continues to deliver strong results. Year-to-date, we've delivered 15 billion impressions, with the early 5 billion in Q3. We have run more than 25,000 commercials, including spots in the Super Bowl, the Olympics, the NFL, the Grammys, and most recently at the Emmys, which was hosted by our spokesperson, Dan Levy, along with his father.
Speaker Change: Buyers want to see who the listing agent is so they can reach out for quick question without getting the hard sell from half a dozen buyer brokers seller.
Speaker Change: Sellers want the agent they hired and worked hard to find to work leads for their homes effective sale.
Speaker Change: I believe that our business model is clearly superior to our competitors and that it will be the future model.
In the U S. Our marketing campaign for homes Dotcom continues to deliver strong results year to date, we've delivered 15 billion impressions with nearly $5 billion in Q3.
Speaker Change: We have run more than 25000 commercials, including spots in the Super Bowl The Olympics the NFL the Grammys and most recently at the Emmys, which was hosted by our spokesperson Dan Levy along with his father it.
Andrew C. Florance: It was phenomenal to have a new commercial content running in the Emmys using the actors that were hosting, or it actually was hosting the Emmys. It was a great moment for Homestuck. Com. With SCM and digital, we're on track to generate 80 billion impressions this year for Homes.com. You, like 90% of Americans, have likely seen Homes.com ads. We have four great new creatives running which highlight how clean and beautiful the site is, the benefit of seeing the real listing, and agents have on home buyers and sellers' lives. We monitor third party surveys who ask home buyers and sellers to name residential real estate portals from the top of their mind.
Speaker Change: It was phenomenal to have new commercial content running in the.
Speaker Change: The Emmys.
Speaker Change: Using the actors that we're hosting or inaccurate it was hosting them as it was a great buy.
Speaker Change: For homes Dot com.
Speaker Change: With SCM and digital we're on track to generate 80 billion impressions. This year for <unk> Dot Com you like 90% of Americans have likely seen homes dot com ads.
Speaker Change: We have four great new creative writing, which highlight how clean and beautiful to cite is the benefit of seeing the real listing agent on listing. The fact that homes dot com has been completely rebuilt to be the best and the positive impact of agents have on homebuyers and sellers lives.
Speaker Change: We monitor third party surveys, who ask homebuyers and sellers to name residential real estate portals from the top of their mind. This is unaided awareness.
Andrew Florance: This is unaided awareness. As your unaided awareness grows, your site traffic and value to agents can grow. Homes.com, unaided awareness has risen from 4% before the marketing campaign launched in February to 33% in the most recent months, so from 4% to 33% more than, you know, a significant increase. While we have not yet achieved higher unaided awareness of the brands that have been around for decades, we're certainly closing on them quickly, and that's an important indicator. For perspective, both Apartments.com and Homes have similar unaided awareness just prior to launch. In the eight month post launch, Homes.com with 33% unaided awareness has outperformed where Apartments got to, which was 20% unaided awareness in its eighth month, so we're growing awareness faster for Homes.com than we did for Apartments.
Speaker Change: As your unaided awareness grows your site traffic and value to agents can grow.
Speaker Change: Homes Dotcom unaided awareness has risen from 4% before the marketing campaign launch in February to.
Speaker Change: To 33% in the most recent months so from 4% to 33%.
Speaker Change: More than a significant increase.
Speaker Change: While we have not yet achieved higher unaided awareness of the brands had been around for decades, We're certainly closing on them quickly and that's an important indicator.
For perspective, both apartments dot com and homes has similar unaided awareness just prior to launch.
Speaker Change: In the eight months post launch homes Dot com with 33% unaided awareness has outperformed where apartments got too.
Speaker Change: Which was 20% unaided awareness in its eighth month, so we're growing awareness faster for homes dot com than we did for apartments.
Andrew C. Florance: This is particularly remarkable because Homes.com is growing this share into a much more competitive segment with entrenched competitors who've been investing heavily in marketing for an extended period of time. Another unaided survey question asks home sellers and buyers which site they plan to use. Homes.com unaided intention has grown 500% this year from 4% pre-launch to 20% today. The survey also asks homes sellers and buyers their likelihood to recommend Homes.com, and that generates our net promoter score. Here we've done particularly well prior to launch. Homes.com NPS was 44, and it steadily climbed to 75% in less than a year.
Speaker Change: Particularly remarkable because homes dot com is growing this share into a much more competitive segment with entrenched competitors who've been investing heavily in marketing for an extended period of time.
Speaker Change: Another unaided survey question asks home sellers and buyers, which site they plan to use <unk>.
Speaker Change: Homes Dotcom unaided intention has grown 500% this year from 4% prelaunch to 20% today.
Speaker Change: The survey also asked home sellers and buyers their likelihood to recommend homes dot com.
That generates our net promoter score here, we've done, particularly well prior to launch homes Dotcom NPS was 44 and has steadily climbed to 75% in less than a year.
Andrew C. Florance: The Homes.com delivered 130 million average monthly Homes.com network delivered 130 million average monthly unique visitors for the third quarter according to Google Analytics, which was an increase of 17% over the same quarter last year. Homes.com had 85 million average monthly unique visitors in the third quarter, an increase of 38% year every year. Based on the latest data we have, we believe that Homes.com network of residential sites is now the second most heavily trafficked US residential portal. Homes.com creates value for agents in their homes sellers by intensively marketing their listings and services. I do not believe that there's a better way to market a home for sale today than by leveraging the unique marketing power of Homes.com.
The homes Dotcom delivered 130 million average monthly Homesite Com network delivered 130 million average monthly unique visitors for the third quarter. According to Google analytics, which was an increase of 17% over the same quarter last year.
Speaker Change: <unk> Dot Com had 85 million average monthly unique visitors in the third quarter, an increase of 38% year over year.
Based on the latest data we have we believe that homes that the Homestar Com network of residential sites is now the second most heavily trafficked U S residential portal.
Speaker Change: Homes Dot com creates value for agents and their home sellers by intensively marketing their listings in services.
Speaker Change: I do not believe that there's a better way to market a home for sale today that by leveraging the unique marketing power of homes Dot com.
Andrew C. Florance: According to NAR, 100% of home shoppers turn to the Internet to find their next home, making the Internet the most important marketing arena for home buying. Portals like Realturn Zillow turn the internet against agents by stripping away the leads from the listing agents. In contrast, Homes.com makes internet work for agents with your listing, your lead principle. Members gain advantage on Homes.com because they're listing sort to the top of results. These listings are presented across many different sections of the Homes.com site, highlighted in millions of emails and are extended. They're relatively retargeted to home shoppers across the internet.
Speaker Change: According to NAR, 100% of home shoppers turned to the Internet to find their next home, making the internet. The most important marketing arena for home buying.
Speaker Change: Portals like realtor, and Zillow turn the internet against agents by stripping away the leads from the listing agents.
Speaker Change: In contrast.
Homestar Com makes it internet work for agents with our your listing your lead principle.
Speaker Change: Members gain advantage on homes dotcom, because their listing sort to the top of results. These listings are presented across many different sections of the homes Dotcom site highlighted in millions of emails and are extensively re targeted to home shoppers across the internet on average homes Dot com members.
Andrew C. Florance: On average, Homes.com members' listings are viewed on the site 120,000 times per month each, which is 46 times more than the 2,600 times a nonmember's listings are viewed. So that's giving the members' listings a massive amount of exposure and value to the home seller. So these member listings that are getting more exposure, they're shared through 343% more often than basic listings. They're favorited 600% more often than basic listings. On average, member listings sell faster and for more money. Our member agents sell this fact in their presentations to potential home sellers, and that allows them to win more valuable listing assignments.
Speaker Change: Listings are viewed on this site 120000 times per month, each which is 46 times more than the 2600 times eight non member listings argued so that's giving the members listings a massive amount of exposure and value to the home seller.
Speaker Change: So these member listings that are getting more exposure there shared through 343% more often than basic listings their favorite is 600% more often than basic listings.
Speaker Change: On average member listing sell faster and for more money or.
Speaker Change: Our member agents sell this fact in their presentations to potential home sellers and that allows them to win more valuable listing assignments.
Andrew Florance: Our data shows that Homes.com members are winning 50% more listings after they become members than when the time period was before they became members. They're winning 50% more listings; that is a very compelling potential ROI for them. Homes.com markets brokerages, brands, and agents where other sites strip their identities or make them nearly invisible from the internet. Zillow strips the brokerage, the brand of the agent from the listing and replaces it with a button contact agent, which really means contact Zillow. It's not hard to imagine why brokers and agents love Homes.com since we show their name on their listings, and the leads go directly to them.
Our data shows that homes dotcom members are winning 50% more listings.
Speaker Change: After they become members then win.
Speaker Change: Time period was before they became members, they're winning 50% more listings that is a very compelling potential ROI for them.
Speaker Change: Homes, Dotcom market's brokerages brands and agents, where other sites strip third entities or make them in nearly invisible from the internet.
Speaker Change: <unk> strips the brokerage the brand the agent from the listing and replaces it with a button contact agent, which really means contact zillow.
Speaker Change: It's not hard to imagine why brokers and agents love homes Dot com since we show their name on their listings in the leads go directly to them.
Andrew C. Florance: I estimate that home buyers and sellers will see an agent and their brokerage name on Homes.com 272 billion times across the year. So they're not invisible on our site. They're highly promoted. The ultimate customers, the homes seller, paying hundreds of billions in commissions, and what they want is to market their home for sale and sell it faster and for more money. That's what we help them do when you innovate with a better business model, and it's different than what has been offered in the past two decades. It takes a little time for people to understand that something is different and better.
Estimate that homebuyers and sellers will see an agent and their brokerage name on homes Dot Com 272 billion times across the year.
Speaker Change: So they're not visible on our site they are highly promoted.
Speaker Change: The ultimate customers the home seller paying hundreds of billions in commissions and what they want.
Speaker Change: As to market their home for sale and sell it faster and for more money.
Speaker Change: That's what we help them do.
Speaker Change: When you innovate with a better business model and it's different than what has been offered in the past two decades. It takes a little time for people to understand that something is different and better.
Andrew Florance: We generate another net promoter score for the likelihood that a client or a member agent would recommend that another agent get a membership to Homes.com. Each month, we have seen significant improvement in that NPS. Our NPS climbed 35 points between May and September, or actually between May and June. And it climbed 8.7 points between June and July, 1.4 points July to August, and 6.1 points from August and September. So it keeps climbing month after month as people learn about the value proposition. Our NPS score is already good, but we hope to eventually reach the incredibly high NPS of Apartments.com.
Speaker Change: We generated another net promoter score for the likelihood that a client or a member agent would recommend.
Speaker Change: Another agent get a membership to homes dot com.
Speaker Change: Each month, we have seen significant improvement in that NPS. Our NPS climbed 35 points between May and September are actually between May and June.
Speaker Change: And climbed eight seven points between June July 1.4 points July to August and 6.1 points from August to September so it keeps climbing month after month as people learn about the value proposition.
Speaker Change: Our NPS score is already good, but we hope to eventually reach the incredibly high NPS of apartments Dot com.
Andrew Florance: We now offer Matterport 3D Tours as part of the Homes.com membership in 94 markets. Properties with 3D Tours sort to the top of the list in searches and contribute to more consumer engagement. We know that at Apartments.com that apartments with Matterport have 134% more time on site. It also improves the quality of a lead when consumers have more visual information about the property before they submit the lead. We believe that as more of our members use Matterport, it will increase the velocity at which they can sell their clients' homes. Homes.com is outperforming Apartments.com in revenue generation at the same relative time post launch.
Speaker Change: We now offer matter port <unk> tours as part of the homes Dot Com membership at 94 markets properties with three D tours sort to the top of the list and searches and contribute to more consumer engagement. We know that we know that on apartments dot com that apartments with matter ports have 134% more.
Speaker Change: Time on site.
It also improves the quality of the lead when consumers have more visual information about the property before they submit the lead.
Speaker Change: We believe that as more of our members use matter port It will increase the velocity at which they can sell their clients' homes.
Speaker Change: Homes Dot com is outperforming apartments dot com and revenue generation at the same relative time post launch.
Andrew Florance: In the two full quarters post launch, Apartments.com generated 28 million in annualized revenue. Homes.com has nearly doubled that performance, generating 54.8 million in annualized revenues in the first two quarters post launch. As I mentioned, each time we launch a major new product, we leverage the scale of the existing Salesforce to bring more resources to the brand new sales effort. As soon as practical, we build out a dedicated Salesforce for the new product. In this case, our top priority today is building out a dedicated Salesforce for Homes.com. At the point we launched the new Homes.com at this year's Super Bowl, we had 41 dedicated Homes.com salespeople production.
Speaker Change: And the two full quarters post launch apartments dot com generated $28 million in annualized revenue.
Dot com has nearly doubled that performance generating $54 8 million in annualized revenues in the first two quarters post launch.
Speaker Change: As I mentioned each time, we launch a major new product, we leverage the scale of the existing sales force to bring more resources to the brand new sales effort.
Speaker Change: And as practical we built out a dedicated sales force for the new product in this case, our top priority today is building out a dedicated sales force for homes Dot com.
Speaker Change: At the point, we launched the new homes Dot Com at this year's Super Bowl, We had 41 dedicated homes dotcom salespeople to production, we hired 28 in the second quarter and 108 in the third quarter by.
Andrew C. Florance: We hired 28 in the second quarter and 108 in the third quarter. By September of this year, we had 113 in production, with 192 hired, but some still in training. Our goals to have more than 275 salespeople hired in production by year end. We hope to double that Salesforce again in 25 and bring it closer to 600 salespeople by year end. At this point, we have a very capable sales leader for Homes.com and Andrew Sterns. I have confidence that he can meet this key result.
Speaker Change: By September of this year, we had 113 in production with 192 hired but some still in training.
Speaker Change: Our goal is to have more than 275 salespeople hired in production by year end.
Speaker Change: We hope to double that sales force again in 'twenty, five and bring it closer to 600 sales people by year end.
Speaker Change: At this point, we have a very capable sales leader for homes Dot com and Andrew Stearns and I have confidence in he can meet this key result, no pressure Andrew.
Andrew Florance: No pressure, Andrew. Currently, the average Homes.com salesperson with four months of experience is selling 2,108 grossly gross monthly new sales and 1,641 net new monthly sales. That equates to 236,000 in annualized buildings after a year of selling at that average pace. We ramp up to 600 salespeople. We could add 142 million in annualized buildings on an annualized basis. I would hope to beat that level as we continue to grow the brand and the product. On the market, our UK residential real estate portal continues to make great progress. We have grown year-round traffic by 212 per cent, unique visitors by 348 per cent, listing agents by 27 per cent, sales leads by 76 per cent, and total stock by 45 per cent.
Speaker Change: Currently the average homes dotcom salesperson with four months of experience is selling 2108 grossly.
Speaker Change: Gross monthly new sales and 1641 net new monthly sales that.
Speaker Change: That equates to 236000 annualized billings.
Speaker Change: After a year of selling at that average pace.
Speaker Change: We ramp up to 600 salespeople, we could add $142 million in annualized billings on an annualized basis I would hope to beat that level as we continue to grow the brand and the product.
Speaker Change: On the market our U K residential real estate portal continues to make great progress, we have grown year over year traffic by 212% unique visitors by 348%.
Speaker Change: Listing agents by 27% sales leads by 76% and total stock by 45%. It is hard to believe that Costar acquired on the market only 12 months ago with so much progress.
Andrew Florance: It is hard to believe that co-star acquired on the market only 12 months ago was so much progress. Agents of the United Kingdom express overwhelmingly to me that they're dissatisfied with the way pricing works there with competitors. Rightmove has already publicly suggested it will increase prices by 35% in the next couple of years, and that follows on a track record of years of price increases. This could create a great opportunity for on-the-market to grow in the United Kingdom.
Speaker Change: Agents in the United Kingdom Express overwhelming lead to me that they are dissatisfied with the way pricing works there with competitors.
Great move has already publicly suggested it will increase prices by 35% in the next couple of years and that follows on a track record of years of price increases.
Speaker Change: This could create a great opportunity for on the market to grow in the United Kingdom.
Andrew Florance: There's an extraordinary amount of change in the residential real estate market. We believe Homes.com is well positioned to capitalize on this rapid transformation US market. Generally speaking, the brokerage firms are unhappy. Post the NAR settlement in March earlier this year, more than 100 brokerage firms, including industry giants anywhere in campus, have gone public wanting to take back control of their listings that their agents work hard to get. Consumers aren't happy and are becoming more aware. Under the guise of transparency, those portals have utilized the legacy MLS system to leverage sellers' listings as bait to monetize diverted leads to the highest buyer agent bidder and away from the listing agent who's working on behalf of the seller.
Speaker Change: There's an extraordinary amount of change in the residential real estate market. We believe homes dot com is well positioned to capitalize on the rapid transformation of the U S market.
Speaker Change: Generally speaking the brokerage firms are unhappy post the NAR settlement in March earlier, this year more than 100 brokerage firms, including industry Giants anywhere encompass have gone public wanted to take back control of their listings.
Speaker Change: That their agents work hard to get.
Speaker Change: Consumers aren't happy and are becoming more aware under the guise of transparency.
Those portals have utilized the legacy MLS system to leverage sellers listings as bait to monetize diverted leads to the highest buyer agent bidder and away from the listing agent, whose working on behalf of the seller.
Andrew Florance: In many cases, these leads are sold to multiple buyer agent bidders. The Zillaflex and Realtor.com shared lead models unleash multiple agents contacting unsuspecting buyers that, to this day, believe that they're reaching out to the listing agent when they were clicking on the house they were interested in. This is not only misleading, it's a terrible consumer experience. Due to the NAR settlement, MLS rules now require the buyer agents working with a buyer to enter into a written agreement before even taking them on a tour. Specifying the amount agent will be compensated and who will be paying for it, the home seller of the buyer.
Speaker Change: In many cases. These leads are sold to multiple buyer agent bidders, Brazil, flex and realtor Dot com shared lead models unleash multiple agents contacting unsuspecting buyers that to this day I believe that they are reaching out to the listing agent when they were clicking on the house they were interested.
Speaker Change: In.
Speaker Change: This is not only misleading, it's a terrible consumer experience.
Speaker Change: Due to the NAR settlement MLS rules now require the buyer agents working with a buyer enter into a written agreement before even taking them on a tour.
Speaker Change: Specifying the amount the agent will be compensated and who will be paying for it the home seller or the buyer.
Andrew C. Florance: I believe that this new rule will create significant friction and pose a painful challenge to Realtor and Zillow. If a buyer goes to an open house or to homes.com where you're always put in touch directly with the listing agent, there is no friction as no buyer's agent agreement is needed to go see the house. That's another benefit of your listing your lead model. Of course, 90% of home shoppers will still use a buyer's agent, but they want to do so on their own terms, with transparency, honesty, and with their own timing. Ghostar is always invested back into the business to help us grow and gain the synergies that occur from building out more products that reach more real estate customer segments across more geography.
Speaker Change: I believe that this new rule will create significant friction impose a painful challenge to realtor and zillow.
Speaker Change: The buyer goes to an open house or to homes Dot com, where you're always putting touch directly with listing agent. There is no friction as no buyer's agent agreement is needed to go see the house.
Speaker Change: That's another benefit that you're listing your lead model of course, 90% of home shoppers will still use a buyer's agent, but they want to do so on their own terms with transparency honesty and with their own timing.
Speaker Change: Costar has always invested back into the business to help us grow and gain the synergies that occur from building out more products that reach more real estate customer segments across more geography. So we're a company that's always reinvested into growth.
Andrew Florance: We're companies always reinvested into growth. I look at a model like REA Group or RightMove that has historically remained primarily focused on achieving the highest possible margins rather than investing and growth. They're both successful businesses, very successful businesses, but may offer less long-term shareholder value growth. I believe REA Group has primarily grown by increasing pricing on a per agent basis. According to data from online marketplaces, which I believe is run by a former CEO of REA Group, so according to a reasonable authority, according to data from online marketplaces in 2009, REA Group was generating 500 pounds of revenue per month per agent.
Speaker Change: I look at a model like ours to a group a right move that has historically remained primarily focused on achieving the highest possible margins rather than investing reinvesting in growth.
Speaker Change: They are both successful businesses very successful businesses, but may offer less long term shareholder value growth.
Speaker Change: I believe our EEA group has primarily grown by increasing pricing on a per agent basis.
According to data from online marketplaces.
Speaker Change: Which I believe is run by a former CEO of <unk> group so according to <unk>.
Speaker Change: A reasonable authority. According to data from online marketplaces in 2009, or a group was generating 500 pounds of revenue per month per agent.
Andrew Florance: Yet by 2024, they were generating 4,500 pounds per month per agent. That's a 15% compound annual growth in fees per agent. This is a userious $70,000 per agent annually, so they're generating $70,000 per agent annually. Looking forward, if REA Group continues with that value creation strategy and increases their fees per agent by 50% per agent. 15% compound annual growth rate for the next 15 years as they did for the last 15. They'll be seeking 700,000 in fees per agent in 39. That's not possible. Things that cannot continue will not continue. I believe that they understand this problem, which is why they made the recent failed attempt to acquire Rightmove in the UK in seeking alternative growth.
Speaker Change: Yet by 'twenty 'twenty four they were generating 4500 pounds per month per agent.
Speaker Change: That's a 15% compound annual growth in fees per agent.
Speaker Change: This is really a serious $770000 per agent annually, so generating 70000 per agent annually.
Speaker Change: Looking forward, if Ari group continues with that value creation strategy and increases their fees per agent by 15% compound annual growth rate for the next 15 years as they did for the last 15.
Speaker Change: There'll be seeking 700000 in fees per agent in 39.
Speaker Change: That's not possible.
Speaker Change: Things that cannot continue will not continue.
Speaker Change: I believe that they understand this problem, which is why they've made the recent failed attempt to acquire right move in the U K in seeking alternative growth.
Andrew Florance: In sharp contrast, CoStar has historically made significant investments to continuously expand our customer base rather than abuse a smaller one. And therefore, we've created sustainable long-term shareholder value. Our investments in buying and growing LoopNet Apartments.com were initially somewhat unpopular with investors. That's probably an understatement for those of us there for that. We were a $1 billion market cap business when we bought LoopNet in 2011, and just three years later, in 2014, we were a 4.5 billion market cap business when we bought a part of this.com. And Stanley Zillow was the same size as we were in 2014 with a $4 billion market cap.
Speaker Change: In Sharp contrast, Costar has historically made significant investments continuously expand our customer base rather than abuse, a smaller one and therefore, we've created sustainable long term shareholder value.
Speaker Change: Our investments in buying and growing Loopnet apartments dot com, where initially somewhat unpopular with investors is probably a understatement for those who was there for there for that.
Speaker Change: We were a $1 billion market cap business, when we bought Loopnet in 'twenty 11, and just three years later in 2014, we were at $4 5 billion market cap business, when we bought apartments dot com and.
And suddenly Zillow was the same size as we were in 2014 was a $4 billion market cap.
Andrew C. Florance: Today, we're a 30 billion market cap business and more than double the size of Zillow's market cap. Our investment as a percentage of market cap and Apartments.com was significantly higher than the investment we're today making in Homes.com. The homes.com opportunity is bigger than the apartments and the commercial state information opportunities combined today.
Speaker Change: Today, we're a $30 billion market cap business and more than double the size of <unk> market cap.
Speaker Change: Our investment as a percentage of market cap in apartments Dot com was significantly higher than the investment or today, making in homes Dot com.
Speaker Change: Homestar com opportunity is bigger than the apartments, and the commercial real estate information opportunities combined.
Speaker Change: Today.
Speaker Change: Boom.
Andrew Florance: So you may have seen just recently a press release costs in addition to the earnings press release. And so today we announced a definitive agreement to acquire Visual Lease. The strategic acquisition is expected to enhance CoStar Group's real estate manager business line and provide additional lease management accounting services to current Visual Lease customers. CoStar real estate manager is used by large enterprise level customers providing vital lease administration reporting compliance services, ensuring seamless workflows between real estate and accounting teams. By combining CoStar groups resources with visual leases diverse customer base, best in class customer retention, deep, deep lease portfolio management expertise at a user centric design.
Speaker Change: So you may have seen just recently a press release costs. In addition to the earnings press release, and so today, we announced a definitive agreement to acquire visual lease.
Speaker Change: The strategic acquisition is expected to enhance Costar group's real estate manager business line and provide additional lease management accounting services to current visual lease customers.
Speaker Change: I'll start real estate manager used by large enterprise level customers, providing vital lease administration reporting compliance services <unk>.
Speaker Change: Ensuring seamless workflows between real estate and accounting teams.
Speaker Change: By combining costar group's resources with visual leases diverse customer base best in class customer retention.
Speaker Change: Deep lease portfolio management expertise at a user centric design, we are well positioned to offer a more comprehensive service offering and contain growth growing both nationally and internationally in this segment.
Andrew Florance: We're well positioned to offer a more comprehensive service offering and continuing growth, growing both nationally and internationally in this segment.
Andrew Florance: Finally, want to touch on the economy and what we're seeing in the real estate economy. The commercial estate economy has started to show signs of potential improvement from what I think is probably a cycle bottom. Office prices are down 18% over the past year and currently set 43% below their peak level. Be a little worse if we were doing that in real dollars. Multi-family prices are down 11% over the past year and are 25% off from their peak. Industrial and retail prices never saw as big a decline and are down only 5% from their peaks.
Speaker Change: Finally, I want to touch on the economy and what we're seeing in the real estate economy.
Speaker Change: The commercial real estate economy has started to show signs of potential improvement from what I think is probably a cycle bottom.
Speaker Change: Office prices are down 18% over the past year and currently sit at 43% below their peak level.
Speaker Change: Be a little worse, if we were doing that in real dollars.
Speaker Change: Multifamily prices are down 11% over the past year, and our 25% off from their peak.
Speaker Change: Industrial and retail prices never saw a bigger decline and are down only 5% from their peaks.
Andrew C. Florance: The multi-family sector continued its recent trend of better-than-expected renter demand, with 174,000 units being absorbed. This puts absorption for the year on pace to be double last year's levels and to be near the record levels last seen in 2021. But with a wave of new construction that the sector has seen, strong absorption was not enough to match deliveries, and vacancies remained at elevated levels, currently at 7.9% and would increase a bit. With 720,000 units still under construction, those vacancy rates I think will remain at upper levels for quite some time. The office sector hit an all-time high in vacancy this quarter, but I'm becoming somewhat optimistic that we're about to see a turn.
Speaker Change: The multi stacked the multifamily sector continued its recent trend of better than expected renter demand with 174000 units being absorbed.
Speaker Change: This puts absorption for the year on pace to be double last year's levels and to be near the record levels last seen in 2021.
Speaker Change: But with a wave of new construction that the sector has seen strong absorption was not enough to match deliveries and.
Speaker Change: And vacancies remained at elevated levels currently at seven 9% and would increase a bit.
Speaker Change: With 720 720000 units still under construction.
Speaker Change: Those vacancy rates I think will remain.
Speaker Change: Upper levels for quite some time.
Speaker Change: The office sector hit an all time high in vacancy this quarter, but I'm, becoming somewhat optimistic that we're about to see a turn the rate of increase in vacancy is slowing to a crawl.
Andrew Florance: The rate of increase in vacancy is slowing to a crawl. One important lead indicator, sublet vacancy, is now clearly falling. Another leading indicator, total availability is already falling. The spread between vacancy and availability is shrinking, usually indication of early signs of recovery. Leasing volume is back to pre-pandemic levels, though with smaller average leaf sizes, suggesting a larger number of overall leases being signed. New construction underway at 82 million square feet is the lowest level seen since 2013 and not far from the lowest levels ever seen. These low levels will eventually translate into shrinking vacancies and rising rates; rents, back up the truck and load up on quality distressed office buildings on 10X.
Speaker Change: One important lead indicator sublet vacancy is now clearly fallen another leading indicator total availability is already falling.
Speaker Change: The spread between vacancy and availability is shrinking usually indication of early signs of recovery.
Speaker Change: Leasing volume is back to pre pandemic levels, though with smaller average lease size is suggesting a larger number of overall leases being signed.
Speaker Change: New construction underway at 82 million square feet is the lowest level seen since 2013 and not far from the lowest levels ever seen this.
Speaker Change: These low levels will eventually translate into shrinking vacancies and rising rates rents.
Speaker Change: Back up the truck and load up on quality distressed office buildings on 10 X.
Andrew Florance: That was a little commercial and started to build earnings call. The industrial sector contained the trend of recent quarters with modest positive demand being matched by even more supply as the historic wave of construction the sector continues to play out. Absorption last quarter was 32 million square feet. The layers were almost double that at 63 million square feet; vacancy rose a bit at 15 basis points. Industrial vacancy currently sits pretty stable at 6.6%. The retail sector, which has been in relative supply demand equilibrium for the past two years, continued that trend last quarter with normal vacancy rates.
Speaker Change: That was a little commercial inserted to build earnings call.
Speaker Change: The industrial sector continued the trend of recent quarters with modest positive demand being matched by even more supply is historic with construction sector continues to play out absorption last quarter was 32 million square feet deliveries were almost double that at 63 million square feet vacancy rosebel at 15 basis points.
Speaker Change: Industrial vacancy currently sits pretty stable at six 6%.
Speaker Change: The retail sector, which has been relative supply demand equilibrium for the past two years continue that trend last quarter with normal vacancy rates.
Andrew C. Florance: The hospitality sector saw overall improved performances past quarter. Over the past year, upper scale hotels have seen occupancy grow up 1%, while lower scale hotels have dropped 2%. In the residential sector, mortgage rates have eased from their peak a year ago and are down 170 basis points, but are still high enough levels to prevent a significant increase in home sales. With most homeowners sitting on mortgages below 4%, the thought of having to move to a mortgage rate of over 6% is not appealing, as preventing homeowners from selling their house and buying another one. This has meant fewer homes being offered for sale, which is propping prices up a bit and keeping affordability at near record lows.
Speaker Change: The hospitality sector saw overall improved performance this past quarter over the past year upper scale hotels have seen occupancy grow occupancy to grow up 1%, while lower scale hotels have dropped 2%.
Speaker Change: In the residential sector mortgage rates have eased from their peak a year ago and are down 170 basis points, but are still high enough levels to prevent a significant increase in home sales with most homeowners sitting on mortgages below 4% the thought of having to move to a mortgage rate of over 6% is not appealing is preventing homeowners from selling their house and buying it.
Speaker Change: The other one this has meant fewer homes being offered for sale, which is propping prices up a bit and keeping affordability at near record lows.
Andrew C. Florance: In summary, despite macroeconomic headwinds, we continue to demonstrate the strength of our commercial real estate and multi-family business with continued double-digit growth and strong unit of margins. Our residential portals are benefiting from our product enhancements, strong marketing campaigns, growing consumer awareness, growing site traffic, and revenue growth growth on both sides of the pond. Given the huge total addressable market opportunities across our product offering, we believe investing in our sales forces across the board will allow us to invigorate sales in 25 and solid revenue growth in 26 and beyond.
Speaker Change: In summary, despite macroeconomic headwinds we continue to demonstrate the strength of our commercial real estate and multifamily business with continued double digit growth and strong EBITDA margins or.
Speaker Change: Our residential portals are benefiting from our product enhancements strong marketing campaigns growing consumer awareness growing site traffic and revenue growth on both sides of the pond.
Speaker Change: Given the huge total addressable market.
Speaker Change: Opportunities across our product offering we believe investing in our sales forces across the board will allow us to invigorate sales and twenty-five and solid revenue growth and 26 and beyond.
Christopher: At this point, I'm going to turn the call over to Christopher, our CFO, or Chris. Thank you, Andy. Good evening. I'm happy to report that CoStar Group's revenue grew 11% year over year in the third quarter, in line with our guidance and marking our 54th consecutive quarter of double-digit revenue growth. Net new bookings for the quarter were $44 million. As Andy mentioned, we began migrating the sales force back to their core brands late in the third quarter. And we expect sales reps to rebuild pipelines in the fourth quarter and return to higher levels of productivity in early 2025.
Speaker Change: At this point on the turn the call over to Christopher <unk> our CFO.
Christopher: Thanks, Chris Thank you Andy.
Christopher: Good evening I'm happy to report that Costar group's revenue grew 11% year over year in the third quarter.
Christopher: In line with our guidance and marking our 54th consecutive quarter of double digit revenue growth.
Christopher: Net new bookings for the quarter were $44 million.
Christopher: As Andy mentioned, we began migrating the salesforce back to their core brands late in the third quarter, and we expect sales reps to rebuild pipelines in the fourth quarter and return to higher levels of productivity in early 2025.
Christopher: Our core business is strong, and the total addressable market is billions of dollars. Given the size of this opportunity, we have already begun to invest in increasing the size of our sales teams in CoStar, Apartments.com and LoopNet. Looking first at our CoStar product, revenue grew 10% in the third quarter, in line with our guidance. We are maintaining our previous full-year guidance of 10% growth. Importantly, we have grown our customer base through an incredibly challenging commercial real estate market and have continued to enhance, develop, and expand the product. A key example of this is our lender product.
Christopher: Our core business is strong and the total addressable market is billions of dollars.
Christopher: Given the size of this opportunity we have already begun to invest in increasing the size of our sales teams and costar apartments dot com in Loopnet.
Christopher: Looking first at our Costar product revenue grew 10% in the third quarter inline with our guidance, we are maintaining our previous full year guidance of 10% growth.
Christopher: Importantly, we have grown our customer base through an incredibly challenging commercial real estate market and have continued to enhance develop and expand the product.
Christopher: A key example of this is our lender product.
Christopher: As the former CFO of one of the largest real estate finance companies in the US, I believe CoStar's lender product is the most sophisticated product for real estate lenders on the market today. Given its strong position and leading capabilities, lenders continued to see robust growth in the third quarter, posting impressive 36% revenue growth year over year. Apartments, Comm, third quarter revenue growth came in at 16%, and we are maintaining our full year guidance of 17% revenue growth. LoopNet revenue grew 5% in the third quarter, in line with our guidance, and we are maintaining our full year revenue outlook for LoopNet of mid-single-digit growth.
The former CFO of one of the largest real estate finance companies in the U S. I believe costars lender product is the most sophisticated products for real estate lenders on the market today.
Christopher: Given our strong position and leading capabilities lender continued to see robust growth in the third quarter.
Christopher: Posting impressive 36% revenue growth year over year.
Christopher: Apartments Com third quarter revenue growth came in at 16% and we're maintaining our full year guidance of 17% revenue growth.
Christopher: Loopnet revenue grew 5% in the third quarter.
Christopher: In line with our guidance and we are maintaining our full year revenue outlook for loopnet of mid single digit growth.
Christopher: Residential revenue came in at $28 million in the third quarter and we now expect full year 2020 for revenue to approximate $100 million.
Christopher: Residential revenue came in at $28 million in the third quarter, and we now expect full year 2024 revenue to approximate $100 million. Over the past seven months, we have continuously fine-tuned our sales strategy and our customer service analytics for homes.com agent members to open form agents of the tremendous benefits of homes.com membership. Additionally, we are rapidly growing the dedicated Homes.com sales force. Revenue from information services dropped 26% year over year due to the continued transition of STR into CoStar. We are now guiding for annual revenue to be modestly higher than $130 million.
Christopher: Over the past seven months, we have continuously fine tuned our sales strategy and our customer service analytics for homes Dotcom agent members to open form agents of the tremendous benefits of homes Dot com membership.
Christopher: Additionally, we are rapidly growing the dedicated homes dotcom sales force.
Christopher: Revenue from information services dropped 26% year over year due to the continued transition of STR into Costar.
Christopher: We're now guiding for annual revenue to be modestly higher than the $130 million.
Christopher: Other marketplaces revenue was $32 million in the third quarter and we now expect fourth quarter revenues to be similar to those in the third quarter.
Christopher: On a consolidated basis adjusted EBITDA for the third quarter was $76 million, producing an 11% margin, which was well ahead of our 7% guidance.
Christopher: We were able to successfully manage our expenses given the current climate and our commercial information and marketplaces businesses delivered a profit margin of 43% in the third quarter.
Christopher: Our sales force totaled approximately 1340 people at the end of the third quarter.
Christopher: A 19% year over year increase on approximately 100% more than last quarter.
Christopher: Our contract renewal rate was 91% for the third.
Christopher: Quarter.
Christopher: With the renewal rate for customers, who have been subscribers for five years or longer at 95%.
Christopher: Subscription revenue on annual contracts was 80% for the third quarter of 2024.
Christopher: We continue have a fortress balance sheet with $4.9 billion in cash, which earned net interest income of $56 million, a 5% rate of return.
Christopher: With our pending matter Port acquisition expected to now close either in the fourth quarter of 'twenty 'twenty four or the first quarter of 2025, our guidance does not reflect any financial impact from this transaction.
Speaker Change: In addition, as Andy mentioned, we recently announced the $272 $5 million acquisition of visual lease.
Christopher: Our guidance also does not reflect in our financial any financial impact from this transaction, which we expect to close in the fourth quarter of 2024, and we expect it to be accretive to earnings in 2025.
Christopher: Our full year 2024 revenue outlook is now in the 2.72 billion to $2 $73 billion range representing growth of 11% the <unk>.
Christopher: Modest adjustment to our revenue guidance range reflects our adjusted residential guidance unless favorable property market conditions in the third quarter.
Christopher: We anticipate adjusted EBITDA for the year in the range of $205 million to $215 million, which is $10 million higher than our second quarter guidance.
Christopher: I will now turn the call back over to our operator to open the lines for questions.
Christopher: Thank you.
Speaker Change: Reminder, to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.
Christopher: Okay.
Speaker Change: Our first question comes from Stephen Sheldon with William Blair You May proceed.
Stephen Sheldon: Hey, Thanks for taking my question.
Stephen Sheldon: It seems like the commercial real estate backdrop is improving as we speak.
Stephen Sheldon: So how are you thinking about the growth outlook in 2025 for businesses like Loopnet.
Stephen Sheldon: Loopnet should we be expecting some notable acceleration there, especially as you move past the hump dot com sales distractions this year.
Stephen Sheldon: <unk> capacity it sounds like Youre, adding and then just given the more favorable backdrop, how are you generally thinking about it.
Yes so.
Stephen Sheldon: As we continue to grow the product.
Speaker Change: So couple of couple of different approaches to that one is.
Yes.
Speaker Change: It's remarkable that we've done as well as we have in this very difficult market and so when the pressure starts to ease off a bit and again.
I'm observing these improvements in say the office market pretty early in the cycle I think it will become more evident in the next quarter or two.
Speaker Change: But.
Speaker Change: That will switch that from a headwind to a tailwind which should give us a benefit when I look at our penetration rates into brokers corporations owners institutions banks. There is plenty of room to grow and that growth is going to be easier in a in a better market.
Speaker Change: I feel that Loopnet growth is a little more neutral to that environment.
Speaker Change: But I think that the fundamentals in Loopnet are growing the sales force improving the.
Speaker Change: Pricing model.
Speaker Change: That will all give us some headwind.
Speaker Change: We've grown our revenue through the years you have to keep growing your sales force at the same productivity level in order to cover what would be a normal very low cancellation rate. So if you're only seeing 7% annual cancels in costar that still is in that you have to sell past to continue to grow subscription revenue. So as we grow the sales force that will give us a little tail.
Speaker Change: One two so optimistic about how those all look in the year to come barring any sort of external.
Event that occurs that we can anticipate.
Andrew Florance: Alright. Thank you. Our next question goes from Jeff Meuler with Beard. You may proceed. Yes, thank you. So early in the call, you made a reference, Andy, to starting to see an upturn as you reply or ties sales resources back to their core responsibilities. Can you just go into more detail on what you're seeing? And maybe why was the distraction greater than you were kind of expecting? Because I think when you set out on this dual sales responsibility, you tried to structure the comp plans to protect the core bookings. Thank you. Sure. So we have seen an uptick and say, co-star sales in the most recent month, which is basically directly attributable to people putting more of their attention into their core product.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Jeff Mueller with Baird You May proceed.
Jeff Mueller: Yes. Thank you. So early in the call you made a reference Andy to starting to see an upturn as you.
Speaker Change: We prioritize sales resources back to their core responsibilities.
Jeff Mueller: Can you just go into more detail on what Youre seeing and maybe why was the distraction greater than you were kind of expecting because I think when you set out on this dual sales responsibilities you tried to structure the comp plans to protect the core bookings. Thank you.
Sure. So we have seen an uptick in say costar sales.
Jeff Mueller: In the most recent month, which is basically directly attributable people.
Jeff Mueller: Putting more of their attention into their core product.
Okay.
Jeff Mueller: So as they as salespeople went into selling homes dot com inevitably liked them to keep selling both products, but I think they ended up spending.
Andrew Florance: So as sales people went into selling Homes.com and eventually liked them to keep selling both products. But I think they ended up spending a little more time in the home side, and they were not as experienced as saw in that new product. The value propositions were not as clear to them. So they pretty much were slowing down a little bit as they moved into semi rookie status in a new product area. So I really appreciate their efforts in helping that Homes.com get off to a good start. But the reality is their time was just limited, and between it too, they couldn't maintain growth in homes and the same level of production in their core products.
Jeff Mueller: A little more time on the home side and they were not as experienced as sign that new product the value propositions were not as clear to them.
So as you know.
Jeff Mueller: They pretty much were slowing down a little bit as they moved into semi Ricky status and a new product area.
Jeff Mueller: So I really appreciate their efforts in helping that homes dotcom get off to a good start.
Jeff Mueller: But the reality is their time was just limited and between the two they couldnt maintain.
Jeff Mueller: And homes and the same level of production in.
Jeff Mueller: In their core products.
Andrew Florance: So this is one of the dilemmas that you always face when you're starting a major new product area that you hope to be a billion-dollar business one day. You just don't have a sales force for a billion-dollar product before you begin. So the pace of ramping up the dedicated home sales force that we mentioned is ambitious. It's hard work, but I think that we're making really good progress for it. And I wish I could take you on a tour through the sales floor in Richmond, where these hundreds of home sales people are beginning to build a really highly energized strong sales force.
Jeff Mueller: So this is this is one of the dilemmas of that you always face when you're starting a major new product area that you hope to be $1 billion business one day.
Jeff Mueller: Just don't have a sales force for $1 billion product before you begin.
Jeff Mueller: So.
Jeff Mueller: The pace of ramping up the dedicated home sales force that we mentioned is ambitious it's hard work, but I think that we're making really good progress for it.
Jeff Mueller: And I wish I could take you on a tour through the sales floor and Richmond, where these hundreds of homes salespeople or are beginning to build a really highly energized strong sales force and I think there'll be able to grow into carrying that load completely on their own and by 25, 100% of the.
Andrew Florance: And I think they'll be able to grow into carrying that load completely on their own, and by 25, 100% of the legacy core sales teams will be back focused on their products, and that will reenergize growth. So it's a price you pay as you launch a new potential billion-dollar product line, but I think it's well worth it. It's always painful when you're doing this, but it's worth it. Thank you.
Jeff Mueller: Our legacy core sales teams will be back focused on their products and that will reenergize growth.
Jeff Mueller: So it's the price you pay as you launch a new potential billion dollar product line, but I think it's well worth it it's always painful when you're doing this but it's worth it.
Speaker Change: Thank you.
Our next question comes from Pete Christiansen with Citi. You May proceed.
Andrew Florance: Our next question comes from Pete Christianson, with city. You may proceed. Good evening, thanks for the question. And he has just wondering if we could talk to the potential of the home business and it sees anality out of imagine some of the shorter term contracts maybe the renewals were so great. After six months, given the long season, do you think that's going to be a feature of the business and what can you do to stay that off. Pete, I don't really think that was. I think the primary issue there was that. As you put 1,300 people into selling a new product with a dare to a training, which is all you have when you're trying to move that many people into that product area.
Pete Christiansen: Good evening. Thanks for the question Andy I was just wondering if you could talk to the potential of the homes business.
Speaker Change: Seasonality I would imagine.
Speaker Change: Some of the shorter term contracts, maybe renewals worth so great.
Speaker Change: After six months given the lull in the season do you think thats going to be a feature of the business and what can you do.
Speaker Change: To say that at all.
Speaker Change: Pete I don't really think that what I think the.
Speaker Change: The primary issue there was that.
Pete Christiansen: As you put 1300 people into selling a new product with a day or two of training, which is all you have when you're trying to move that many people into that product area.
Speaker Change:
Andrew Florance: They were. Selling the product without a solidly refined value proposition, as you want to see, and they were also not as experienced in providing follow-up sales training after the sale. And so there was a significant number of folks who thought they were buying a buyer-agent lead diversion product, which is not what they were really buying. Or even though it wasn't sold that way, in some cases they perceived as what they were buying because that's all that you could buy in the industry for the last two decades. I feel very comfortable about what we're selling is a value proposition, which is the ability to win new listings in a competitive market at a rate greater than you were before, and what we're showing is a 50% improvement in win rate on new listings.
They were.
Speaker Change: Selling the product with out a solidly or refined value proposition as you want to see and they were also not as experienced in providing follow up sales training. After this.
Speaker Change: After the sale or product support after the sale and so there was a significant number of folks who thought they were buying a buyer agent lead diversion product, which is not what they were really buying or are they even though it wasn't sold that way in some cases they perceive that.
Speaker Change: What they are buying because that's all that you could buy in the industry for the last two decades I feel very comfortable about the what we're selling is a value proposition, which is the ability to win new listings.
In a competitive market at a rate greater than you were before and what we're showing is 50% improvement in win rate on new listings that more then gives you an inadequate ROI to justify the product and when I mentioned that constantly improving NPS score through the year on the product with members.
Andrew Florance: So that more than gives you an adequate ROI to justify the product. And when I mentioned that constantly improving NPS score through the year on the product with members, that shows that members are beginning to understand that value proposition. It's resonating, and we're getting better and better NPS score. So I believe that over time, people will look at this as an annual subscription. I don't think our product; I think for people that have consistent listings and a lot of people do, like in residential, say you got a million six folks or rather number is. Of which about 450,000 are actually in the business, and they're doing it full time, support themselves, and probably 400 and some thousand have a consistent inventory of listings.
Speaker Change: That shows that members are beginning to understand that value proposition is resonating and we're getting better and better NPS scores. So.
Speaker Change: I believe that over time people will look at this as an annual subscription.
Speaker Change: Don't think our product I think for people that have consistent listings and a lot of people do like in residential real estate, you've got $1 million.
Speaker Change: Six folks or where the number is.
Speaker Change: Of which about 450000 are actually in the business in there and doing it full time to support themselves and probably 400 and some thousand have a consistent inventory of listings those folks with a consistent inventory of listings I think our year round continuous high renewal rate subscribers to homes dot com the fee.
Andrew C. Florance: Those folks with a consistent inventory of listings, I think, are year-round, continuous, high renewal rates of subscribers to homes.com. The folks who don't have any listings, many of them who bought into homes.com really on, they're not going to get the same benefit from homes, just because they don't really win a lot of listings no matter what tools they have. So, I think that's really more what happened early on, not cycle. That's too long a question. But Pete, didn't you like Chris is lying about being CFR CEO, whatever of a major financial institution and loving the lender product?
Speaker Change: Folks, who don't have any listings many of them who bought into homes dotcom early on they're not going to get the same benefit from homes, just because they don't really when a lot of listings no matter what tools. They have so that I think that's really more what happened early on not cycle.
Speaker Change: That's too long a question for Pete and you're like Chris's line about being.
Speaker Change: CFO or CEO whatever of a major financial institution and loving the lender product.
Andrew C. Florance: That was strong. Very strong. Thank you. Hi, next question goes from Ryan Domacello with KVW. You may proceed. Hi, everyone. Thanks for taking the questions. Can you say what the revised annual guidance this year includes for residential spend and the non-residential EBITDA margin for the full year and just given all the moving pieces, Andy, with respect to residential and Homes.com. I think it would be helpful if you were willing to provide some early indication of how next year's investment levels might trend, at least relative to this year. Just to give some folks reassurance around how that might impact margins over the near term.
Speaker Change: Because that was strong.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Thank you.
Our next question comes from Brian Thomas L. O K B W. You May proceed.
Speaker Change: Hi, everyone. Thanks for taking the questions.
Brian Thomas: Can you say what the revised annual guidance. This year includes four residential spend and the nonresidential EBITA margin for the full year and just given all the moving pieces, Andy with respect to residential and homes Doc comment I think it would be helpful.
Brian Thomas: If you were willing to provide some early indication of how next year's investment levels might trend at least relative to this year.
Andy Florance: Just to give some folks reassurance around how that might impact margins over the near term. Thanks. So I'll answer the second part first and then Chris can answer the first part second so I think that we are already we launched homes dot com with a very invest a very aggressive investment level I think.
Andrew Florance: So I'll answer the second part first, and then Chris can answer the first part second. So I think that we are already, we launched Homes.com with a very aggressive investment level. I think it's appropriate for a product opportunity to scale and size. So the good news; the bad news is that it was a big investment. The good news is it's at a level that I think it sustains us. So I don't see a need to increase our investment in marketing or in Homes.com as we go in the next year. So I think that improvement in EBITDA you've seen through the year is sort of indicative of the fact that we saw low point in that investment in the EBITDA associated with that investment.
Andy Florance: It is appropriate for a product opportunity of this scale and size.
Andy Florance: So the good news Bad news is that was a big investment. The good news is it's at a level that I think it sustains us so I don't see a need to increase our investments in marketing or in homes Dot com.
Andy Florance: As we go into next year, So I think that improvement in EBITDA, you've seen through the year.
Andy Florance: Is sort of indicative of the fact that we saw low point and that investment and the EBITDA associated with that investment so.
Christopher: and Chris, as a second part. Yeah, and I think to the second point, we're still on track to spend the amount we've discussed throughout the year in residential, and we continue to see continued growth and margins in the commercial businesses that we've discussed. So I think we're on track line for the numbers that we've discussed historically, and no real change. Thank you. Our next question comes from George Tong with Goldman Sachs; he may proceed. Hi, thanks. Good afternoon. I wanted to also ask about the resilience. Can you elaborate on how much of your reduction to the residential guide is due to the Salesforce productivity issues you mentioned versus client demand.
Speaker Change: I have Chris answer the second part.
Speaker Change: Link to the second point, we're still on track to spend.
Chris Lown: The amount we have discussed throughout the year in residential and we continue to see AR.
Speaker Change: Continued growth in margins in the commercial.
Speaker Change: Businesses that we've discussed so I think we're on track line for the number that we've discussed historically.
Speaker Change: No real change.
Speaker Change: Thank you.
Speaker Change: Our next question comes from George Tong with Goldman Sachs. You May proceed.
George Tong: Hi, Thanks, Good afternoon I wanted to also ask about the resi business can you elaborate on how much of your reduction to the residential guide is due to the sales force productivity issues, you mentioned versus client demand and discuss how overall client demand for.
Andrew Florance: And discuss how overall client demand for homes that come membership is tracking relative to your internal expectations. So I would say that I would say that it's more, it's not so much about client demand. It is about Salesforce mechanics. It's about how many people you're put, you can put on to the product and train and cycle up at what pace. So what we're seeing is, as we hire a significant number of, I don't want to say junior, but not senior salespeople, we're hiring a number of salespeople successfully into the homes Salesforce. A very high percentage of them are ramping up very quickly to a production level that covers their cost in their first year with a company and then moves them into being very profitable in out years.
George Tong: <unk> Dot com membership is tracking relative to your internal expectations.
Speaker Change: So I would say that.
Speaker Change: I would say that it's more it's not so much about client demand it is about.
Speaker Change: It is about Salesforce mechanics, it's about how many people you put you can put onto the product and training cycle up.
Speaker Change: At what pace.
Speaker Change: So what we're seeing is as we hire.
Speaker Change: A significant number of I.
Speaker Change: I don't want to say junior, but not senior salespeople or hiring a number of salespeople successfully into the homes sales force.
Speaker Change: A very high percentage of them are ramping up very quickly to a production level that covers their cost in their first year with the company and then move them into being very profitable in out years.
Andrew C. Florance: So it's not so much like they're all like we're finding plenty of demand. It's more of a question of, you know, how many people do you have approaching the opportunity, and how fast can you hire people. I mean, there's a limit to how many people you can hire into a sales opera, the sales role like that before you start to lose quality. You know, the things begin to rattle too much, so adding a hundred and eight people in a quarter is pretty good, but we wouldn't want to go too far ahead of that because that's just a lot of people with bringing on board.
Speaker Change: So it's not so much like Theyre, all like we're finding plenty of demand.
Speaker Change: It's more of a question of.
Speaker Change: How many people do you have approaching the opportunity and how fast can you hire people I mean, theres a limit to how many people you can hire into a sales op sales role like that before you start to lose quality or the.
Speaker Change: The things begin to rattle too much so adding 108 people in a quarter is pretty good.
Speaker Change: But we wouldn't want to go too far ahead of that because that's just a lot of people to bring onboard.
Speaker Change: Thank you.
Andrew Florance: Thank you. Our next question comes from John Campbell. Would Steven think you may proceed? Hey guys, thanks for the question. I know there's some seasonality in the span, particularly with marketing stand, that's typically higher in the front half, but it looks like sales and marketing drops eventually pretty sharply. That was the first, I think, sequential drop you guys have seen in three cues since maybe 2019. So kind of related to Ryan's question here. Do you think about the resume investment next year, and it sounds like you don't expect that to go up, but my question is could that initially go lower from a gross standpoint?
Our next question comes from John Campbell with Stephens, Inc. You May proceed.
John Campbell: Hey, guys. Thanks for the question.
John Campbell: I know theres some seasonality in the spring.
John Campbell: Particularly with the marketing spend that's typically higher on the front half, but it looks like sales and marketing dropped sequentially pretty sharply that was the first sequential drop you guys have seen in <unk> since maybe 2019.
Speaker Change: So kind of related to Ryan's question here do you think about the resi investment next year and it sounds like you don't expect that to go up but my question is could that potentially go lower from a from a growth standpoint.
Andrew Florance: I would imagine not probably doing the same amount of Super Bowl commercials. I would imagine, you know, the stuff down in the spend probably was a little bit less FEM, so you're still seeing good traffic that lower levels of stand. So I'm just curious about if there's a potential for it to actually go lower next year. Well, give you one glimpse. We are anticipating a 33% reduction in homes Super Bowl ads this year. So that gives you some indication. Thank you very much.
Speaker Change: Imagine you're not probably doing the same amount of Super Bowl commercials I would imagine.
Speaker Change: The step down in <unk>.
Speaker Change: Probably.
Speaker Change: A little bit less SCM, so youre still seeing good traffic at lower levels of spend so I'm just curious about if theres a potential for it to actually go lower next year.
Speaker Change: I'll give you one glimpse, we are anticipating a 33% reduction in homes Super Bowl ads this year.
Speaker Change: So that gives you some indication.
Speaker Change: But.
Again, we remain bullish about the opportunity and what we're accomplishing.
Speaker Change: We see indicators that make us feel good about where we're going with this opportunity.
Speaker Change: So we are likely to continue to push on it into next year and don't see us pulling back dramatically from where we were this year, nor accelerating from where we are this year and I think it is important to remember we will be growing the salesforce pretty meaningfully so actually that sales force increase will.
Speaker Change: Drive expenses will be partially offset by some lower marketing spend so there will be some.
Speaker Change: No change in mix, but inevitably probably ends up at the same level.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Surinder <unk> with Jefferies. You May proceed.
Speaker Change: Thank you hi.
Speaker Change: Hi, Andy just a big picture question here.
Speaker Change: As you think about the homes dot com product and just conceptually.
Speaker Change: You can make the argument that its.
Speaker Change: Possible to build a perfect product.
Speaker Change: Execute perfectly if my product but for.
Speaker Change: Maybe factors beyond your control it just doesn't work out.
Speaker Change: How are you thinking about some of the metrics beyond just like a net bookings number kind of understand the decision making in how patient that you are willing to be or how patient investors should be.
Speaker Change: Well.
Speaker Change: Again, you have this phenomenon where people in seven months want a conclusive result.
Speaker Change: That doesn't happen.
Speaker Change: You don't build $1 billion product in seven months.
Speaker Change: And.
Speaker Change: But what we're looking at is we're looking at.
Speaker Change: Our our growth in <unk>.
Speaker Change: Consumer awareness, our ability to bring people to our site.
Speaker Change: Preference for our site, which we're seeing a clear preference for our site.
Speaker Change: And.
Speaker Change: We are watching a shift in the industry away from.
Speaker Change: Buyer agency lead diversion to something where.
Speaker Change: Folks are looking to.
Speaker Change: Have the portals do what they do in the rest of the world, which is to market the home for sale, which is the whole point to begin with so.
Speaker Change: We're pretty excited about everything that's occurring despite the fact that it's hard to launch it and the fact that it requires.
Speaker Change: A little bit of patients and that it requires capital to be able to pursue an opportunity like this so.
Speaker Change: When I look at the sales metrics at the micro level and we just sum it up and we look at the people we're bringing in are what they are achieving and the growth in NPS scores.
Speaker Change: Just mechanically.
Speaker Change: It lays out to a good result, and a good time period now when does it become obvious to everybody that it is going the right direction. It's not this year it would be.
Speaker Change: Difficult for me to tell when it becomes obvious that it's working.
Speaker Change: But it's probably next year.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Ashish <unk> with RBC you May proceed.
Hi, Thanks for taking my question.
Speaker Change: Bookings were down 34% in the quarter being down cookie syncing up to date, how should we think about the impact of weak bookings going into next.
Speaker Change: Next year and how do we think about the puts and takes to help offset that headwinds from the weak bookings okay.
Speaker Change: So inevitably in our subscription business net bookings ultimately translate into revenue in the following year and so it's fairly mechanical.
Speaker Change: The third quarter, we have our net bookings are sort of in the ground and the roll forward to 2025, I think what Andy has talked about is getting the sales force reengage, but also investing in the sales force, so really pensions and pay attention to net bookings in four Q1 Q2 Q of next year, which will then roll into 'twenty six growth.
Yeah.
Speaker Change: So again I think it's a mechanical exercise we are three quarters in the ground you can roll forward, but really pay attention to what our net bookings over the coming quarters to really get minus side on the second half of 'twenty five growth into 'twenty six.
Speaker Change: Thank you I would now like to turn the call back over to rich simonelli for any closing remarks.
Speaker Change: Im actually going to grab those closing remarks from rich says good yeah.
Rich Simonelli: I just want to thank everyone for joining us on this earnings call and we look forward to updating you. Shortly here if you have any additional questions following the call.
Rich Simonelli: Please reach out to our.
Rich Simonelli:
Rich Simonelli: Very musically talented IR professional rich salmonella at get rich at Costar Dot com. Thank you for joining us look forward to talking to you next quarter.
Speaker Change: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.
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Richard Simonelli: Thank you for watching! Thank you. I would not like to turn the call back over to Rich Seminelli for any closing remarks. I'm actually going to grab those closing remarks from Rich. So I just want to thank everyone for joining us on this earnings call. I look forward to updating you shortly here. If you have any additional questions following the call, please reach out to our very musically talented IR professional, Rich Seminelli, at Get Rich at CoStar.com. Thank you for joining us. Look forward to talking to you next quarter. Thank you.
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Speaker Change: Good day and thank you for standing by welcome to the Q3 2020 for Costar Group Earnings Conference call. At this time all participants are in a listen only mode. Please be advised that today's comprehensive being recorded after the speaker's presentation there'll be a question and answer.
Speaker Change: Session to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again I would now like to hand, the conference over to your speaker today, Rich Simonelli head of Investor Relations.
Rich Simonelli: Hello, and thank you all for joining us to discuss that.
Speaker Change: Third quarter 2024 results of the Costar group.
Speaker Change: Before I turn the call over to Andy Florance, Costar, CEO and founder Chris Lown, our CFO.
Speaker Change: I'd like to review, our Safe Harbor statement certain portions of the discussion today may contain forward looking statements, including the company's outlook and expectations for the fourth quarter and full year 2024 based on current beliefs and assumptions.
Speaker Change: Forward looking statements involve many risks uncertainties assumptions estimates and other factors that could cause actual results to differ materially from such statements important factors that could cause actual results to differ include but are not limited to those stated in Costar group's press release issued earlier today and in our filings with the SEC.
Speaker Change: <unk> our most recent annual report on Form 10-K, and subsequent quarterly reports on Form 10-Q.
Speaker Change: Under the heading risk factors.
Speaker Change: All forward looking statements are based on the information available to Costar on the date of this call and Costar assumes no obligation to update these statements whether as a result of new information future events or otherwise reconciliation to the most directly comparable GAAP measure of any non-GAAP financial measure discussed on this call.
Speaker Change: As shown in detail in our press release issued today, along with the definitions for these terms.
Speaker Change: The press release is available on our website located at Costar group Dot Com under press room.
Speaker Change: As a reminder, instance, many or do you all logged in already today's conference call is being webcast live and in color and the link is also available on our website under investors.
Speaker Change: Please refer to today's release on how to access the replay of this call and with that I would like to turn the call over to our founder and CEO Andy Florance. Thank.
Andy Florance: Thank you for joining Costar group's third quarter earnings call welcome back Rich I noticed you.
Andy Florance: Missed a few earnings calls yes.
Speaker Change: I was enjoying myself on the eastern shore you were working remote yes, and now you are back working a real job well you should be when youre in the office business you should be in the office that's right welcome back. Thank you.
Speaker Change: We achieved another strong quarter of financial results third quarter, 2024 revenue was $693 million, an 11% increase year over year and in line with our guidance.
Speaker Change: This is the 54th consecutive quarter of double digit growth for Costar group.
Speaker Change: Our core businesses are strong industry leaders I am extremely pleased that each of our 1 billion dollar businesses Costar and apartments continued to grow revenue, 10% and 16% respectively.
Speaker Change: We are on track for 17% revenue growth in multifamily in 2020 for a business. That's now approaching $1 1 billion in run rate revenue.
Speaker Change: We grew net income in the quarter to $53 million up from $7 million in Q1 24.
Speaker Change: We grew EBITDA in the quarter to $51 million up from.
Speaker Change: From negative $13 million in Q1, 24, our adjusted EBITDA of $76 million in the quarter was well ahead of our guidance range of $47 million to $52 million.
Speaker Change: The early part of 'twenty 'twenty four was our most intensive investment period into homes Dot com.
Speaker Change: The profit margin of our commercial information and marketplace businesses remained strong increasing to 43% in the quarter.
Speaker Change: Our average monthly unique visitors to our global websites reached $163 million in the third quarter of 2024, According to Google analytics, which is up 28% year over year.
Speaker Change: Company net new bookings were $44 million in the third quarter of 24.
Speaker Change: We launched homes Dot com earlier this year and when he did we only had 41 dedicated salespeople to selling homes dot com at the scale of the product we needed a much larger sales force to take advantage of the opportunity. So we asked all the sales teams across Costar group to help sell the new homes Dot com product.
Speaker Change: They did successfully sell a significant volume of homes dot com, but it came at the price of selling less of their core product the.
Speaker Change: The reality of pivoting the entire sales force through new product.
Speaker Change: Is that they are all rookies and some of the new product. This means lower productivity lower service skills and suboptimal command of value propositions that causes lower overall productivity in renewal rates in the early sales process.
Speaker Change: But.
Speaker Change: It's worth it for launching a major new product with long term potential.
Speaker Change: We have been ramping that dedicated sales teams quickly and now all but 200, the dedicate home sales teams quickly and now all but 200 of the overall Costar group Costar apartments, and Loopnet salespeople are back to soar in their respective products as their only in core focus.
Speaker Change: It takes about one to two quarters to completely refilled. These pipelines. So I expect an improvement in net new bookings in Q4 and throughout 2025, we are already seeing an upturn.
Speaker Change: September was the strongest month in net new sales and our costar product in the past year.
Speaker Change: While we are growing the dedicated homes dotcom sales force, we are concurrently invest and to grow the sales teams of Costar, Loopnet and apartments dot com as well by more than 100 sales reps. Each we believe theres more than enough market opportunity to productively engage the additional sales head count.
Speaker Change: In the four years since the Covid Lockdown in March 2020, we have experienced the worst commercial real estate market in a generation.
Speaker Change: Even considering these significant headwinds costar continues to be the preeminent source of information and analytics for the industry and grow revenue.
Speaker Change: Our CRE business has performed remarkably well during this time, having steadily grown subscribers in prices, while maintaining incredible 93% renewal rate in the third quarter of 2024.
Speaker Change: We also launched new products for institutional clients, namely owners and lenders as institutional sales are a major part of our net new sales.
Speaker Change: Our salesforce net promoter scores are now the highest they've ever been for Costar.
Speaker Change: We have seen much success with our lender product, which our customers use to meet banking regulatory requirements, we've experienced 36% growth since Q3, 2023 and $50 million in annualized lender product revenue with only a 12, 5% penetration into what we believe is a tam.
Speaker Change: $400 million for that product area.
On our last call, we announced that we had just released our owner module, which presents the largest owners of commercial real estate and an aggregate view.
Speaker Change: The product enables a user to see the company its subsidiaries funds in real estate assets leasing and sales transaction history brokerage relationships tenants tenant mixes and availabilities.
Speaker Change: Uses of Costar now have a comprehensive view of global owners with portfolios greater than 25 properties.
Costar will become even more valuable as the resetting of commercial property values begins to kick in in 'twenty, five and 26 930 billion of loans are due in 'twenty four with approximately 30% of this total extended from last year.
Speaker Change: M. B S delinquency rates remained elevated in office delinquencies have increased notably to seven 7%.
Speaker Change: Simultaneously I believe that there are green shoots in the office market fundamentals that may motivate buyers looking for opportunistic value as a reasonable result, I believe you will see more transactions on <unk> in the year ahead.
Speaker Change: We continue to see increased costar product activity engagement from our 237000 subscribers.
Speaker Change: Nearly a quarter of million dollars, but not quite.
Speaker Change: Property searches neared $73 million in the third quarter of 2024.
Speaker Change: A 17% increase year over year.
Speaker Change: Overall costar activity counts increased 29% over the same time last year.
Speaker Change: Our distinct logins have increased every month and we set a new high Mark in September with more than 164000 distinct log ins we.
Speaker Change: We serve subscribers with for Costar in 112 countries now.
Speaker Change: S. T. R is an excellent addition to our costar product, adding powerful hospitality data and analytics for Costar subscribers. The hotel asset class is three trillion dollars in value.
Speaker Change: In August we released analytics for more than 400, new global hospitality markets and additional 1200, new hospitality sub markets.
With this release, we have delivered the remaining global markets that were covered by STR before the integration.
Speaker Change: We have over 85000 properties in STR, representing 11 million rooms, contributing data to our platform.
Speaker Change: We track over 300000 hospitality properties from 180 countries.
Speaker Change: We believe Costar is the only source of this comprehensive analytic data, giving our users detailed supply and demand and hotel performance insight around the globe.
Speaker Change: Apartments Dot com turned in another strong quarter revenue was 272 million for the third quarter of 24, we continue to add new customers with properties of all unit counts to our marketplace at a rapid place pace with over 75000 paying communities on our network, including over.
Speaker Change: 10000 in the 5% to 50 unit range.
Speaker Change: In the below 20 unit market, we delivered a record inventory of house condo and townhouse listings in Q3.
Speaker Change: We are seeing strong growth in the rental tools business that supports independent owners with all aspects of managing their rental portfolio.
Speaker Change: Q3 posted a record number of paid user entered listings and we processed $1.3 billion in rent payments.
Speaker Change: Single family rental listings have boosted lead count by more than Forex for homes Dot Com member agents.
Speaker Change: We had nearly a quarter billion of total visits in Q3 with 43 million average monthly unique visitors to our apartments dot com.
Speaker Change: Site with exceptionally strong unaided awareness from apartment seekers at 67% in.
Speaker Change: In Canada, the apartments Dot com generated the most unique visitors of any site according to Comscore.
Speaker Change: Our marketing campaigns continued to deliver with top programming venues like the ESP Awards NBC Olympics zone, the NFL season opener and Jimmy Kimmel live with Jeff Goldblum as the host Jeff Goldbloom, even included apartments Dot com in his opening song.
Jeff Goldblum: If this doesn't work out he said I still have apartments dot com.
Speaker Change: And as always welcome home.
Speaker Change: Two as apartment.
Speaker Change: Apartments dotcom competitive position remains strong in the multifamily segment.
Speaker Change: We bought apartments dot com in 2014, we had approximately $85 million in revenue and we were way back of the pack in a very crowded field, which included Zillow, who had entered the market years before us.
Speaker Change: We have now moved into the clear leadership position in our revenue growth has grown about 1200% from that point.
Speaker Change: <unk>, our multifamily revenues to five times bigger than Zillow and importantly.
Speaker Change: Our revenue is subscription based with outstanding customer satisfaction and very high renewal rates.
Speaker Change: When we purchased four rent dot com I had the chance to spend some time to discussing industry dynamics with their leaders who had a few more decades of experience than I in the multifamily space.
Speaker Change: I asked them what happened to a business like apartments dot com when a bad market came about if theres a downturn.
We're surprised they stopped me and said the question was off because.
Speaker Change: We are currently in a low vacancy rate market, which was in fact, what they considered to be a bad market.
Speaker Change: They explained that the number one player like apartments Dot com does really well in both the high vacancy or low vacancy market because apartment communities will always continuously advertise on the number one platform.
But that second tier players suffered during low vacancy markets because the apartment communities Nate less leads and cutbacks spend on second tier cites or backup sites.
Explain that when vacancies rise in the market becomes soft that's when the second tier cites could grow their business as community supplement their advertising on the primary site like apartments Dot com was spend on second tier cites.
Speaker Change: So remember when a site start showing higher growth rates and high vacancy market. It's a confirmation that the site is an also ran second tier player.
Speaker Change: We are now exceeding 175000 quality client interactions per quarter. This along with a great product results in a satisfied customer base, which gives us a 94 NPS rating with a 92, 6% renewal rate in Q3 really a remarkable NPS.
Speaker Change: Rating congratulations to the apartments dot com team.
Speaker Change: In the third quarter of 'twenty for Loopnet had its best net new sales quarter since Q3, 'twenty three as a loopnet sales force returned its focus to selling loopnet. Despite the mark it's difficult conditions in the third quarter 2000, and for total paid listings are up 4%.
Speaker Change: September also saw the highest number of meetings with clients and prospects in two years.
Our traffic numbers continue to be impressive over the past 12 months Loopnet had a massive 72 times the unique visitors of the average competitor according to SCM rush.
Speaker Change: Internationally, the Canadian Loopnet network, which is relatively new also dominates the nearest competitor with nearly four times the traffic according to SCM rush.
Speaker Change: I'm also pleased with our progress in the U K as the Loopnet network delivered twice the traffic of our nearest commercial like competitor again, according to STM rush.
Speaker Change: We are still in the bottom of the first inning when it comes to launching the new homes Dot Com, we effectively launched the homes Dot com site in mid February of this year. So we're now seven months into building this mega new product area for the company.
Speaker Change: <unk>, our talented staff have put tremendous effort into creating the best residential real estate portal to win over hundreds of millions of home buyers and sellers. So that ultimately we can monetize with a million agents with success in the U S. Our mission will be to expand globally.
Speaker Change: Many will try and read the tea leaves and discern within hours days and months, what the outcome of the years ahead will be <unk>.
Speaker Change: <unk> been fortunate to have the opportunity to work on several large scale projects like this and I know the outcomes only become clear to everybody in the public over the course of several years.
Speaker Change: I feel really great about where we are a comp what we're accomplishing already and I'm highly confident that we can win major share revenue and EBITDA in this segment.
Speaker Change: We continue to hear directly from agents and focus groups brokerage and industry leaders that they definitely prefer our business model of your listing your lead.
Speaker Change: Agents and brokerage firms are becoming more frustrated that they're forced to put their listings into the MLS and that their listing sold off into lead diversion models, such as Zillow and realtor, which means the seller's agent lose control over the listing and lose as potential business from those diverted leads.
Speaker Change: Those.
Speaker Change: Non permission diverted leads.
Speaker Change: Buyers want to see who the listing agent is so they can reach out for quick question without getting the hard sell from half a dozen buyer brokers.
Speaker Change: Sellers want the agent they hired and worked hard to find to work leads for their homes effective sale.
I believe that our business model is clearly superior to our competitors and that it will be the future model.
Speaker Change: In the U S. Our marketing campaign for homes Dotcom continues to deliver strong results year to date, we've delivered 15 billion impressions with nearly $5 billion in Q3.
Speaker Change: We have run more than 25000 commercials, including spots in the Super Bowl The Olympics the NFL the Grammys and most recently at the Emmys, which was hosted by our spokesperson Dan Levy along with his father it.
It was phenomenal to have new commercial content running in the.
Speaker Change: The Emmys.
Speaker Change: Using the actors that we're hosting or inaccurate was hosting them as it was a great.
Speaker Change: For homes Dot com.
Speaker Change: With SCM and digital we're on track to generate 80 billion impressions. This year for <unk> Dot Com you like 90% of Americans have likely seen homes dot com ads.
Speaker Change: We have four great new creative writing, which highlight how clean and beautiful site as the benefit of seeing the real listing agent on listing the fact that homes dot com has been completely rebuilt to be the best and the positive impact of agents have on homebuyers and sellers lives.
Speaker Change: We monitor third party surveys, who ask homebuyers and sellers to name residential real estate portals from the top of their mind. This is unaided awareness.
Speaker Change: As your unaided awareness grows your site traffic and value to agents can grow.
Speaker Change: Homes Dotcom unaided awareness has risen from 4% before the marketing campaign launch in February to.
Speaker Change: To 33% in the most recent months so from 4% to 33%.
Speaker Change: More than a significant increase.
Speaker Change: While we have not yet achieved higher unaided awareness of the brands that have been around for decades, We're certainly closing on them quickly and that's an important indicator.
Speaker Change: For perspective, both apartments dot com and homes has similar unaided awareness just prior to launch.
Speaker Change: In the eight months post launch homes Dot com with 33% unaided awareness has outperformed where apartment Scott too.
Speaker Change: Which was 20% unaided awareness in its eighth month, so we're growing awareness faster for homes dot com than we did for apartments.
Speaker Change: Particularly remarkable because homes dot com is growing this share into a much more competitive segment with entrenched competitors who've been investing heavily in marketing for an extended period of time.
Speaker Change: Another unaided survey question asks home sellers and buyers, which site they plan to use <unk>.
Homes Dotcom unaided intention has grown 500% this year from 4% prelaunch to 20% today.
Speaker Change: The survey also asked home sellers and buyers their likelihood to recommend homes dot com.
Speaker Change: And that generates our net promoter score here, we've done, particularly well prior to launch homes Dot Com NPS was 44 and has steadily climbed to 75% and less than a year.
Speaker Change: The homes Dot Com delivered 130 million average monthly homesite Com network delivered 130 million average monthly unique visitors for the third quarter. According to Google analytics, which was an increase of 17% over the same quarter last year.
Speaker Change: <unk> Dot Com had 85 million average monthly unique visitors in the third quarter, an increase of 38% year over year.
Speaker Change: Based on the latest data we have we believe that homes that the Homestar Com network of residential sites is now the second most heavily traffic U S residential portal.
Speaker Change: Homes Dot com creates value for agents and their home sellers by intensively marketing their listings in services.
Speaker Change: I do not believe that there is a better way to market a home for sale today that by leveraging the unique marketing power of homes Dot com.
Speaker Change: According to NAR, 100% of home shoppers turned to the Internet to find their next home, making the internet. The most important marketing arena for home buying.
Portals like realtor, and Zillow turn the internet against agents by stripping away the leads from the listing agents and.
Speaker Change: In contrast.
Speaker Change: <unk> Dot com makes it internet work for agents with our your listing your lead principle.
Speaker Change: Members gain advantage on homes dotcom, because their listing sort to the top of results. These listings are presented across many different sections of the homes dotcom site highlighted in millions of emails and are extensively re targeted to home shoppers across the internet.
Speaker Change: On average <unk> Dot com members listings are viewed on this site 120000 times per month, each which is 46 times more than the 2600 times a nonmember listings are viewed so that's giving the members listings a massive amount of exposure and value to the home seller.
So.
Speaker Change: These member listings that are getting more exposure there shared through 343% more often than basic listings their favorite at 600% more often than basic listings.
Speaker Change: On average member listing sell faster and for more money.
Speaker Change: Our member agents sell this fact in their presentations to potential home sellers and that allows them to win more valuable listing assignments.
Our data shows that homes dotcom members are winning 50% more listings.
Speaker Change: After they become members than when they have time period was before they became members, they're winning 50% more listings that is a very compelling potential ROI for them.
Speaker Change: Homes Dot com markets brokerages brands and agents, where other sites strip third entities or make them in nearly invisible from the internet.
Speaker Change: Zillow strips the brokerage the brand the agent from the listing and replaces it with a button contact agent, which really means contact zelle.
Speaker Change: It's not hard to imagine why brokers and agents love homes Dot com since we show their name on their listings in the lease go directly to them.
Speaker Change: I estimate that homebuyers and sellers will see an agent and their brokerage name on homes Dot Com 272 billion times across the year.
Speaker Change: So theyre not invisible on our site they are highly promoted.
The ultimate customers the home seller paying hundreds of billions in commissions and what they want.
Speaker Change: Is the market their home for sale and sell it faster and for more money.
Speaker Change: That's what we help them do.
When you innovate with a better business model and it's different than what has been offered in the past two decades. It takes a little time for people to understand that something is different and better.
We generated another net promoter score for the likelihood that a client or a member agent would recommend.
Speaker Change: Yet another agent get a membership to homes dot com <unk>.
Speaker Change: Each month, we have seen significant improvement in that NPS. Our NPS climbed 35 points between May and September are actually between May and June.
Speaker Change: And climbed eight seven points between June July 1.4 points July to August and 6.1 points from August to September so it keeps climbing month after month as people learn about the value proposition.
Our NPS score is already good, but we hope to eventually reach the incredibly high NPS of apartments Dot com.
Speaker Change: We now offer matter port <unk> tours as part of the homes Dotcom membership in 94 markets properties with three D tours sort to the top of the list and searches and contribute to more consumer engagement. We know that we know that on apartments dot com that apartments with matter ports have 134% more.
Speaker Change: More time on site.
Speaker Change: It also improves the quality of the lead when consumers have more official information about the property before they submit the lead.
Speaker Change: We believe that as more of our members use matter port It will increase the velocity at which they can sell their clients' homes.
Speaker Change: Homes Dot com is outperforming apartments dot com and revenue generation at the same relative time post launch.
Speaker Change: And the two full quarters post launch apartments dot com generated $28 million in annualized revenue.
Speaker Change: <unk> Dot com has nearly doubled that performance generating $54 8 million in annualized revenues in the first two quarters post launch.
Speaker Change: As I mentioned each time, we launch a major new product, we leverage the scale of the existing sales force to bring more resources to the brand new sales effort as soon as practical we built out a dedicated sales force for the new product in this case, our top priority today is building out a dedicated sales force for homes Dot com.
Speaker Change: At the point, we launched the new homes Dot Com at this year's Super Bowl, We had 41 dedicate homes dotcom salespeople in production, we hired 28 in the second quarter and 108 in the third quarter.
Speaker Change: By September this year, we had 113 in production with 192 hired but some still in training.
Speaker Change: Our goal is to have more than 275 salespeople hired in production by year end we.
Speaker Change: We hope to double that sales force again in 'twenty, five and bring it closer to 600 sales people by year end.
Speaker Change: At this point, we have a very capable sales leader for homes Dot com and Andrew Stearns and I have confidence in he can meet this key result, no pressure Andrew.
Speaker Change: Currently the average homes dotcom salesperson with four months of experience is selling 2108 grossly.
Speaker Change: Gross monthly new sales and 1641 net new monthly sales.
Speaker Change: That equates to 236000 in annualized billings after a year of selling at that average pace.
We ramp up to 600 salespeople, we could add $142 million in annualized billings on annualized basis, I would hope to beat that level as we continue to grow the brand and the product.
Speaker Change: On the market our U K residential real estate portal continues to make great progress, we have grown year over year traffic by 212% unique visitors by 348% listing agents by 27% sales leads by 76%.
Speaker Change: And total stock by 45%. It is hard to believe that Costar acquired on the market only 12 months ago with so much progress.
Agents in the United Kingdom Express overwhelming lead to me that they are dissatisfied with the way pricing works there with competitors.
Speaker Change: Move has already publicly suggested it will increase prices by 35% in the next couple of years and that follows on a track record of years of price increases.
This could create a great opportunity for on the market to grow in the United Kingdom.
Speaker Change: There's an extraordinary amount of change in the residential real estate market. We believe homes dot com is well positioned to capitalize on the rapid transformation of the U S market.
Speaker Change: Generally speaking the brokerage firms are unhappy posting NAR settlement in March earlier, this year more than 100 brokerage firms, including industry Giants anywhere encompass have gone public wanting to take back control of their listings.
That their agents work hard to get.
Speaker Change: Consumers aren't happy and are becoming more aware under the guise of transparency.
Speaker Change: Those portals have utilized the legacy MLS system to leverage sellers listings as bait to monetize diverted leaves the highest buyer agent bidder and away from the listing agent is working on behalf of the seller.
Speaker Change: In many cases. These leads are sold to multiple buyer agent bidders, the zillow flex and realtor Dot com shared lead models unleash multiple agents contacting unsuspecting buyers that to this day I believe that they are reaching out to the listing agent when they were clicking on the house they were interested.
Speaker Change: In.
Speaker Change: This is not only misleading, it's a terrible consumer experience.
Speaker Change: Due to the NAR settlement MLS rules now require the buyer agents working with a buyer enter into a written agreement before even taking them on a tour.
Specifying the amount the age it will be compensated and who will be paying for it the home seller or the buyer.
Speaker Change: I believe that this new rule will create significant friction impose a painful challenge to realtor and zillow.
Speaker Change: The buyer goes to an open house or to homes Dot com, where you're always put in touch directly with listing agent. There is no friction as no buyer's agent agreement is needed to go see the house.
Speaker Change: That's another benefit of the loot your listing your lead model of course, 90% of home shoppers will still use a buyer's agent, but they want to do so on their own terms with transparency honesty and with their own timing.
Speaker Change: Costar has always invested back into the business to help us grow and gain the synergies that occur from building out more products that reach more real estate customer segments across more geography. So we're a company that's always reinvested into growth.
Speaker Change: I look at a model like ours to a group a right move that has historically remained primarily focused on achieving the highest possible margins.
Speaker Change: Rather than investing reinvesting in growth there.
Speaker Change: They are both successful businesses very successful businesses, but may offer less long term shareholder value growth.
Speaker Change: I believe our EEA group has primarily grown by increasing pricing on a per agent basis.
Speaker Change: According to data from online marketplaces.
Speaker Change: Which I believe is run by a former CEO of <unk> group so according to with.
Speaker Change: A reasonable authority. According to data from online marketplaces in 2009, or a group was generating 500 pounds of revenue per month per agent.
Speaker Change: Yet by 'twenty 'twenty four they were generating 4005 hundred pounds per month per agent.
Speaker Change: That's a 15% compound annual growth in fees per agent.
Speaker Change: This is a serious $770000 per agent annually, so generating 70000 per agent annually.
Speaker Change: Looking forward, if our EEA group continues with that value creation strategy and increases their fees per agent by 15% compound annual growth rate for the next 15 years as they did for the last 15.
Speaker Change: There'll be seeking 700000 in fees per agent in 39.
Speaker Change: That's not possible.
Things that cannot continue will not continue.
I believe that they understand this problem, which is why they've made the recent failed attempt to acquire right move in the U K and seeking alternative growths.
Speaker Change: In Sharp contrast, Costar has historically made significant investments continuously expand our customer base rather than abuse, a smaller one and therefore, we've created sustainable long term shareholder value.
Speaker Change: Our investments in buying and growing Loopnet apartments dot com, where initially somewhat unpopular with investors is probably a understatement for those who was there for there for that.
Speaker Change: We were a $1 billion market cap business, when we bought Loopnet in 'twenty 11, and just three years later in 2014, we were at $4 5 billion market cap business, when we bought apartments dot com and.
Speaker Change: And suddenly Zillow was the same size as we were in 2014 was a $4 billion market cap.
Speaker Change: Today, we're a $30 billion market cap business more than double the size of <unk> market cap.
Speaker Change: Our investment as a percentage of market cap in apartments dot com was significantly higher than the investment or today, making it homes dot com.
Speaker Change: Homestar com opportunity is bigger than the apartments, and the commercial real estate information opportunities combined.
Speaker Change: Today.
Speaker Change: Ooh.
Speaker Change: So you may have seen just recently a press release costs. In addition to the earnings press release, and so today, we announced a definitive agreement to acquire visual lease.
Speaker Change: The strategic acquisition is expected to enhance Costar group's real estate manager business line and provide additional lease management accounting services to current visual lease customers.
Speaker Change: Costar real estate manager used by large enterprise level customers, providing vital lease administration reporting compliance services, Inc.
Speaker Change: Ensuring seamless workflows between real estate and accounting teams.
Speaker Change: By combining costar group's resources with visual leases diverse customer base best in class customer retention deep deep lease portfolio management expertise at a user centric design, we are well positioned to offer a more comprehensive service offering and contain growth growing both nationally and internationally.
Speaker Change: In this segment.
Speaker Change: Finally, I want to touch on the economy and what we're seeing in the real estate economy.
Speaker Change: The commercial real estate economy has started to show signs of potential improvement from what I think is probably a cycle bottom.
Speaker Change: Office prices are down 18% over the past year and currently sit at 43% below their peak level.
Speaker Change: Be a little worse, if we were doing that in real dollars.
Speaker Change: Multifamily prices are down 11% over the past year, and our 25% off from their peak.
Speaker Change: Industrial and retail prices never solves bigger decline and are down only 5% from their peaks.
Speaker Change: The multi stacked the multifamily sector continued its recent trend of better than expected renter demand with a 174000 units being absorbed.
Speaker Change: This puts absorption for the year on pace to be double last year's levels and to be near the record levels last seen in 2021.
Speaker Change: But with a wave of new construction that the sector has seen strong absorption was not enough to match deliveries and.
Speaker Change: And vacancies remained at elevated levels currently at seven 9% and would increase a bit with.
Speaker Change: With 720 720000 unit still under construction.
Speaker Change: Those vacancy rates I think will remain at upper levels for quite some time.
Speaker Change: The office sector hit an all time high and vacancy this quarter, but I'm, becoming somewhat optimistic that we're about to see a turn there.
Speaker Change: The rate of increase in vacancy is slowing to a crawl.
Speaker Change: One important lead indicator sublet vacancy is now clearly fallen another leading indicator total availability is already falling.
Speaker Change: The spread between vacancy and availability is shrinking usually indication of early signs of recovery.
Speaker Change: Leasing volume is back to pre pandemic levels, though was smaller average lease size is suggesting a larger number of overall leases being signed.
Speaker Change: New construction underway at 82 million square feet is the lowest level seen since 2013 and not far from the lowest levels ever seen.
Speaker Change: These low levels will eventually translate into shrinking vacancies and rising rates rents back up the truck and load up on quality distressed office buildings on 10 X.
Speaker Change: That was a little commercial and started to build earnings call.
Speaker Change: The industrial sector continued the trend of recent quarters with modest positive demand being matched by even more supply as the historic with construction of the sector continues to play out absorption last quarter was 32 million square feet. The layers were almost double that at 63 million square feet vacancy rose a bit at 15 basis points.
Speaker Change: Industrial vacancy currently sits pretty stable at 6.6%.
Speaker Change: The retail sector, which has been relative supply demand equilibrium for the past two years continued that trend last quarter with normal vacancy rates.
Speaker Change: Hospitality sector saw overall improved performance this past quarter over the past year upper scale hotels have seen occupancy grow.
Speaker Change: Occupancy is grow up 1%, while lower scale hotels have dropped 2% in.
Speaker Change: In the residential sector mortgage rates have eased from their peak a year ago and are down 170 basis points, but are still high enough levels to prevent a significant increase in home sales with most homeowners sitting on mortgages below 4% the thought of having to move to a mortgage rate of over 6% is not appealing as preventing homebuyers from selling their house and buying in.
Speaker Change: The other one this has meant fewer homes being offered for sale, which is propping prices up a bit and keeping affordability at near record lows.
Speaker Change: Yeah.
Speaker Change: In summary, despite macroeconomic headwinds we continue to demonstrate the strength of our commercial real estate and multifamily business with continued double digit growth and strong EBITDA margins are.
Speaker Change: Our residential portals are benefiting from our product enhancements strong marketing campaigns growing consumer awareness growing site traffic and revenue growth growth on both sides of the pond.
Speaker Change: Given the huge total addressable market.
Opportunities across our product offering we believe investing in our sales forces across the board will allow us to invigorate sales in 'twenty, five and solid revenue growth and 26 and beyond.
Speaker Change: At this point on the turn the call over to Christopher <unk> our CFO.
Christopher: Thanks, Chris Thank you Andy and good evening I'm happy to report that Costar group's revenue grew 11% year over year in the third quarter.
Christopher: In line with our guidance and marking our 54th consecutive quarter of double digit revenue growth.
Christopher: Net new bookings for the quarter were $44 million.
Christopher: As Andy mentioned, we began migrating the salesforce back to their core brands late in the third quarter, and we expect sales reps to rebuild pipelines in the fourth quarter and return to higher levels of productivity in early 2025 or.
Christopher: Our core business is strong and the total addressable market is billions of dollars.
Christopher: Given the size of this opportunity we have already begun to invest in increasing the size of our sales teams and costar apartments dot com in Loopnet.
Christopher: Looking first at our Costar product revenue grew 10% in the third quarter inline with our guidance, we are maintaining our previous full year guidance of 10% growth.
Christopher: Importantly, we have grown our customer base through an incredibly challenging commercial real estate market and have continued to enhance develop and expand the product.
Christopher: A key example of this is our lender product.
Speaker Change: The former CFO of one of the largest real estate finance companies in the U S. I believe costars lender product is the most sophisticated products for real estate lenders on the market today.
Given our strong position and leading capabilities lender continued to see robust growth in the third quarter.
Posting impressive 36% revenue growth year over year.
Speaker Change: Apartments Com third quarter revenue growth came in at 16% and we're maintaining our full year guidance of 17% revenue growth.
Speaker Change: Loopnet revenue grew 5% in the third quarter in line with our guidance and we are maintaining our full year revenue outlook for loopnet of mid single digit growth.
Speaker Change: Residential revenue came in at $28 million in the third quarter and we now expect full year 'twenty 'twenty four revenue to approximate $100 million.
Speaker Change: Over the past seven months, we have continuously fine tuned our sales strategy and our customer service analytics for homes Dotcom agent members to open form agents of the tremendous benefits of homes Dot com membership.
Speaker Change: Additionally, we are rapidly growing the dedicated homes dotcom sales force.
Speaker Change: Revenue from information services dropped 26% year over year due to the continued transition of STR into Costar.
Speaker Change: We are now guiding for annual revenue to be modestly higher than the $130 million.
Speaker Change: Other marketplaces revenue was $32 million in the third quarter and we now expect fourth quarter revenues to be similar to those in the third quarter.
Speaker Change: On a consolidated basis adjusted EBITDA for the third quarter was $76 million, producing an 11% margin, which was well ahead of our 7% guidance.
Speaker Change: We were able to successfully manage our expenses given the current climate and our commercial information and marketplaces businesses delivered a profit margin of 43% in the third quarter.
Speaker Change: Okay.
Speaker Change: Our sales force totaled approximately 1340 people at the end of the third quarter.
Speaker Change: In 19% year over year increase on approximately 100% more than last quarter.
Speaker Change: Our contract renewal rate was 91% for the third quarter.
<unk>.
Speaker Change: The renewal rate for customers, who have been subscribers for five years or longer at 95%.
Speaker Change: Subscription revenue on annual contracts was 80% for the third quarter of 2024.
Speaker Change: We continue have a fortress balance sheet with $4.9 billion in cash, which earned net interest income of $56 million.
Speaker Change: 5% rate of return.
Speaker Change: With our pending matter Port acquisition expected to now close either in the fourth quarter of 'twenty 'twenty four or the first quarter of 2025, our guidance does not reflect any financial impact from this transaction.
Speaker Change: In addition, as Andy mentioned, we recently announced the $272.5 million acquisition of visual lease or.
Speaker Change: Our guidance also does not reflect in our financial any financial impact from this transaction, which we expect to close in the fourth quarter of 2024, and we expect it to be accretive to earnings in 2025.
Speaker Change: Our full year 2024 revenue outlook is now in the 2.72 billion to $2 $73 billion range representing growth of 11%.
Speaker Change: The modest adjustment to our revenue guidance range reflects our adjusted residential guidance unless favorable property market conditions in the third quarter.
Speaker Change: We anticipate adjusted EBITDA for the year in the range of $205 million to $215 million, which is $10 million higher than our second quarter guidance.
Speaker Change: I will now turn the call back over to our operator to open the lines for questions.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.
Speaker Change: Okay.
Speaker Change: Our first question comes from Stephen Sheldon with William Blair You May proceed.
Stephen Sheldon: Hey, Thanks for taking my question.
Stephen Sheldon: It seems like the commercial real estate backdrop is improving as we speak.
Stephen Sheldon: So how are you thinking about the growth outlook in 2025 for businesses like Loopnet.
Stephen Sheldon: Loopnet should we be expecting some notable acceleration there, especially as you move past the homes dotcom sales distractions this year.
Speaker Change: <unk> capacity it sounds like Youre, adding and then just given the more favorable backdrop, how are you generally thinking about it.
Yes so.
Speaker Change: As we continue to grow the product.
Speaker Change: No.
Speaker Change: Couple of couple of different approaches to that one is.
Yes.
Speaker Change: It's remarkable that we've done as well as we have in this very difficult market and so when the pressure starts to ease off a bit and again.
Speaker Change: I'm I'm observing these improvements in say the office market pretty early in the cycle I think it will become more evident in the next quarter or two.
Speaker Change: But.
Speaker Change: That will switch that from a headwind to a tailwind which should give us a benefit when I look at our penetration rates into brokers corporations owners institutions banks. There is plenty of room to grow and that growth is going to be easier in a in a better market.
Speaker Change: I feel that Loopnet growth is a little more neutral to that environment.
Speaker Change: But I think that the fundamentals in loopnet of growing the sales force improving the.
Speaker Change: Pricing model that will all give us some headwind as.
Speaker Change: As we've grown our revenue through the years you have to keep growing your sales force at the same productivity level in order to cover what would be a normal very low cancellation rate. So if you're only seeing 7% annual cancels in costar that still is in that you have to sell path to continue to grow subscription revenue. So as we grow the sales force that'll give us a little <unk>.
Speaker Change: Aylwin too so optimistic about how those all look in the year to come barring any sort of external.
Speaker Change: Event that occurs that we can anticipate.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Jeff Mueller with Baird You May proceed.
Jeff Mueller: Yes. Thank you. So early in the call you made a reference Andy to starting to see an upturn as you.
Jeff Mueller: We prioritize sales resources back to their core responsibilities can you just go into more detail on what Youre seeing and maybe why was the distraction.
Greater than you were kind of expecting because I think when you set out on this dual sales responsibilities you tried to structure the comp plans to protect the core bookings. Thank you.
Speaker Change: Sure. So we have seen an uptick in say costar sales in the most recent month, which is basically directly attributable people.
Speaker Change: Putting more of their attention into their core product.
Speaker Change: Okay.
Speaker Change: So as they as salespeople went into selling homes dot com inevitably liked them to keep selling both products, but I think they ended up spending.
A little more time on the home side and they were not as experienced as sign that new product the value propositions were not as clear to them.
Speaker Change: So as you know.
Speaker Change: They pretty much were slowing down a little bit as they moved into semi Ricky status and a new product area.
Speaker Change: So I really appreciate their efforts in helping that homesite com get off to a good start.
Speaker Change: But the reality is their time was just limited and between the two they couldnt maintain.
Speaker Change: Growth in homes and the same level of production in.
Speaker Change: In their core products.
Speaker Change: So this is this is one of the dilemmas of that you always face when you're starting a major new product area that you hope to be $1 billion business one day.
Speaker Change: Just don't have a sales force for $1 billion product before you begin.
So.
Speaker Change: We're we're the pace of ramping up the dedicated home sales force that we mentioned is ambitious it's hard work, but I think that we're making really good progress for it.
Speaker Change: And I wish I could take you on a tour through the sales floor and Richmond, where these hundreds of homes salespeople or are beginning to build a really highly energized strong sales force and I think there'll be able to grow into carrying that load completely on their own and by 25, 100% of the.
Speaker Change: Our legacy core sales teams will be back focused on their products and that will reenergize growth.
Speaker Change: So it's the price you pay as you launch a new potential billion dollar product line, but I think it's well worth it it's always painful when you're doing this but it's worth it.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Pete Christiansen with Citi. You May proceed.
Pete Christiansen: Good evening. Thanks for the question Andy I was just wondering if you could talk to the potential of the homes business.
Pete Christiansen: Seasonality I would imagine.
Pete Christiansen: Some of the shorter term contracts, maybe renewals worth so great.
Pete Christiansen: After six months given the lull in the season do you think that's going to be a feature of the business and what can you do too.
Pete Christiansen: To state that all.
Pete Christiansen: Pete I don't really think that what I think the.
Pete Christiansen: The primary issue there was that.
Pete Christiansen: As you put 1300 people into selling a new product with a day or two of training, which is all you have when you're trying to move that many people into that product area.
Pete Christiansen:
Pete Christiansen: They were.
Pete Christiansen: Selling the product without a solidly or refined value proposition as you want to see and they were also not as experienced in providing follow up sales training. After this trait.
Pete Christiansen: After the sale or product support after the sale and so there was a significant number of folks who thought they were buying a buyer agent lead diversion product, which is not what they were really buying or are they even though it wasn't sold that way in some cases they perceive that.
Pete Christiansen: What they are buying because that's all that you could buy in the industry for the last two decades I feel very comfortable about the what we're selling is a value proposition, which is the ability to win new listings.
Pete Christiansen: In a competitive market at a rate greater than you were before and what we're showing is 50% improvement in win rate on new listings that more then gives you an inadequate ROI to justify the product and when I mentioned that constantly improving NPS score through the year on the product with members.
Pete Christiansen: That shows that members are beginning to understand that value proposition is resonating and we're getting better and better NPS scores. So.
Pete Christiansen: I believe that over time people will look at this as an annual subscription.
Pete Christiansen: Don't think our product I think for people that have consistent listings and a lot of people do like in residential real estate, you've got a million.
Six folks or where the number is.
Pete Christiansen: Of which about 450000 are actually in the business in there and doing it full time to support themselves and probably 400 and some thousand have a consistent inventory of listings those folks with a consistent inventory of listings I think our year round continuous high renewal rate subscribers to homes dot com the <unk>.
Pete Christiansen: Folks, who don't have any listings many of them who bought into home satcom early on they're not going to get the same benefit from homes, just because they they don't really when a lot of listings no matter what tools. They have so that I think that's really more what happened early on not cycle.
Speaker Change: That's too long a question, but Pete and you're like Chris's line about being.
Speaker Change: CFO or CEO whatever of a major financial institution and loving the lender product.
Speaker Change: That was strong.
Speaker Change: Okay.
Pete Christiansen: Thank you.
Pete Christiansen: Yeah.
Pete Christiansen: Thank you.
Speaker Change: Our next question comes from Ryan Tomasello with <unk> you May proceed.
Ryan Tomasello: Hi, everyone. Thanks for taking the questions.
Ryan Tomasello: Can you say what the revised annual guidance. This year includes four residential spend and the nonresidential EBITA margin for the full year.
Speaker Change: Given all the moving pieces, Andy with respect to residential and Homestyle comment I think it would be helpful.
Speaker Change: If you were willing to provide some early indication of how next year's investment levels might trend at least relative to this year.
Andy Florance: Just to give some folks reassurance around how that might impact margins over the near term. Thanks. So I'll answer the second part first and then Chris can answer the first part second so I think that we are already we launched homes dot com with a varian best a very aggressive investment level.
As appropriate for a product opportunity of this scale and size.
Andy Florance: So the good news the bad news is that was a big investment. The good news is it's at a level that I think it sustains us so I don't see a need to increase our investments in marketing or in dot com.
Andy Florance: As we go into next year, So I think that improvement in EBITDA, you've seen through the year.
Andy Florance: Is sort of indicative of the fact that we saw low point and that investment and the EBITDA associated with that investment so.
Speaker Change: I have Chris answer the second part.
Chris Lown: I think to the second point, we're still on track to spend them.
Chris Lown: The amount we have discussed throughout the year in residential and we continue to see a continued growth in margins in the commercial.
Chris Lown: Businesses that we've discussed so I think we're on track line for the numbers that we've discussed historically.
Chris Lown: No real change.
Speaker Change: Thank you.
Speaker Change: Our next question comes from George Tong with Goldman Sachs. You May proceed.
George Tong: Hi, Thanks, Good afternoon I wanted to also ask about the resi business.
George Tong: Can you elaborate on how much of your reduction to the residential guide is due to the sales force productivity issues, you mentioned versus client demand and discuss how overall client demand for homes Dot com membership is tracking relative to your internal expectations.
Speaker Change: So I would say that.
Speaker Change: I would say that it's more it's not so much about client demand it is about.
Speaker Change: It is about Salesforce mechanics, it's about how many people you are put you can put onto the product and training cycle up.
Speaker Change: At what pace.
Speaker Change: So what we're seeing is as we hire.
Speaker Change: A significant number of.
Speaker Change: Don't want to say junior, but not senior salespeople or hiring a number of salespeople successfully into the homes sales force.
Speaker Change: A very high percentage of them are ramping up very quickly to a production level that covers their cost in their first year with the company and then move them into being very profitable in out years.
Speaker Change: So it's not so much a like they're all like we're finding plenty of demand.
It's more of a question of.
How many people do you have approaching the opportunity and how fast can you hire people I mean, theres a limit to how many people we can hire into a sales sales role like that before you start to lose quality or the.
Speaker Change: The things begin to rattle too much so adding 108 people in a quarter is pretty good.
Speaker Change: But we wouldn't want to go too far ahead of that because that's just a lot of people to bring onboard.
Speaker Change: Thank you.
Speaker Change: Our next question comes from John Campbell with Stephens, Inc. You May proceed.
John Campbell: Hey, guys. Thanks for the question.
John Campbell: I know theres some seasonality in the span.
But the marketing spend that's typically higher on the front half but.
John Campbell: Looks like sales and marketing dropped sequentially pretty sharply and that was the first I think sequential drop you guys have seen in <unk> since maybe 2019.
Speaker Change #100: So kind of related to Ryan's question here do you think about the resi investment next year and it sounds like you don't expect that to go up but my question is could that potentially go lower from a from a growth standpoint.
Speaker Change #100: I imagine you're not probably doing the same amount of Super Bowl commercials I would imagine.
Speaker Change #100: Stepped down.
Speaker Change #100: Probably.
Speaker Change #100: A little bit less SCM, so you're still seeing good traffic at lower levels of spend so I'm just curious about if theres a potential for it to actually go lower next year.
Speaker Change #101: I'll give you one glimpse, we are anticipating a 33% reduction in homes Super Bowl ads. This year. So that gives you some indication.
Speaker Change #100: But.
Speaker Change #102: Again, we remain bullish about the opportunity and what we're accomplishing.
Speaker Change #102: We see indicators that make us feel good about where we're going with this opportunity.
Speaker Change #102: So we are likely to continue to push on it into next year.
Speaker Change #102: I don't see us pulling back dramatically from where we were this year, nor accelerating from where we were this year and I think it's important to remember we will be growing the sales force pretty meaningfully so actually that sales force increase will drive.
Speaker Change #102: Drive expenses will be partially offset by some lower marketing spend so there will be some.
Speaker Change #102: Change in mix, but inevitably probably ends up at the same level.
Thank you.
Our next question comes from Surinder <unk> with Jefferies. You May proceed.
Surinder <unk>: Thank you.
Speaker Change #104: Hey, Andy just a big picture question here.
Speaker Change #105: As you think about the homes dot com product and just conceptually.
Speaker Change #105: You can make the argument that it's possible to build a perfect product.
Speaker Change #105: Our execute perfectly on that product.
Speaker Change #105: For maybe factors beyond your control it just doesn't work out.
Speaker Change #105: So how are you thinking about some of the metrics beyond just like a net bookings number.
Speaker Change #105: Understand the decision, making and how patient.
Speaker Change #105: You are willing to be or how patient investors should be.
Speaker Change #105: Well.
Speaker Change #105: Again, you have this phenomenon where people in seven months want a conclusive result.
Speaker Change #105: And that doesn't happen.
Speaker Change #105: You don't build a $1 billion product in seven months.
And.
Speaker Change #105: But what we're looking at is we're looking at.
Speaker Change #105: <unk>.
Speaker Change #105: Our our growth in.
Speaker Change #105: Consumer awareness, our ability to bring people to our site.
Speaker Change #105: Preference for our site.
Speaker Change #105: Which we're seeing a clear preference for our site.
Speaker Change #105: And we.
Speaker Change #105: We are watching a shift in the industry away from.
Speaker Change #105: Buyer agency, Lee diversion to something where folks.
Speaker Change #105: Folks are looking to.
Have the portals do what they do in the rest of the world, which is to market the home for sale, which is the whole point to begin with so.
Speaker Change #105: We're pretty excited about everything that's occurring despite the fact that it's hard to launch it and the fact that it requires.
Speaker Change #105: A little bit of patients and that it requires capital to be able to pursue an opportunity like this so.
Speaker Change #105: When I look at the sales metrics at the micro level and we just sum it up and we look at the people we're bringing in are what they are achieving and the growth in NPS scores.
Speaker Change #105: Just mechanically.
Speaker Change #105: It lays out to a good result, and a good time period now when does it become obvious to everybody that it is going the right direction. It's not this year it would be.
Speaker Change #105: Difficult for me to tell when it becomes obvious that it's working.
Speaker Change #105: But it's probably next year.
Speaker Change #105: Thank you.
Speaker Change #106: Our next question comes from Ashish <unk> with RBC you May proceed.
Speaker Change #107: Hi, Thanks for taking my question.
Speaker Change #108: Bookings were down 34% in the quarter being down 38% year to date, how should we think about the impact of the bookings going into <unk>.
Speaker Change #108: And next year and how do we think about the puts and takes to help offset headwinds from the weaker bookings.
Speaker Change #109: Yes, so inevitably in our subscription business net bookings ultimately translate into revenue in the following year and so it's fairly mechanical about that.
Speaker Change #110: The third quarter, we have our net bookings are sort of in the ground and they'll roll forward into 2025, I think what Andy has talked about is getting the sales force reengage, but also investing in the sales force, so really pensions and pay attention to net bookings in <unk> of next year, which will then roll into 'twenty six growth.
Speaker Change #110: So again I think it's a mechanical exercise we are three quarters in the ground you can roll forward, but really pay attention to what our net bookings over the coming quarters to really get site minus side on the second half of 'twenty five growth into 'twenty six.
Speaker Change #111: Thank you I would now like to turn the call back over to rich simonelli for any closing remarks.
Speaker Change #112: I'm actually going to grab those closing remarks from rich says good yeah.
Rich Simonelli: I just want to thank everyone for joining us on this earnings call and we look forward to updating you. Shortly here if you have any additional questions following the call.
Speaker Change #112: Please reach out to our.
Speaker Change #112:
Rich Simonelli: Very musically talented IR professional rich salmonella at get rich at Costar Dot com. Thank you for joining us look forward to talking to you next quarter.
Thank you. This concludes the conference. Thank you for your participation you may now disconnect.
Operator: This concludes the conference. Thank you for your participation. You may now disconnect.